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Front Street hot on miners as recovery picks up

swon@globeandmail.com

What are we looking for?

Stock picks from the pros.

This week, we have been looking at the companies portfolio managers have been scooping up for their funds. Looking at their top holdings is a way to mine some ideas for further research. You might even end up buying the fund instead.

Today, we focus on Front Street Resource Performance Fund. You can check out the top securities at the end of each quarter at Front Street Capital's website at frontstreetcapital.com.

More about the fund

Craig Porter is the lead manager on the $71.1-million natural resource fund. Front Street Resource Performance began early 2007 as a closed-end fund listed on the Toronto Stock Exchange, but converted to a mutual fund recently. The fund, which lost 48 per cent last year amid a market collapse, gained 77.4 per cent for the year ended Nov. 30.

Mr. Porter likes base metals and the oil side of the energy sector. "We are believers in growing world economy," he said. "As we come out of this recession, there will be strong demand for commodities."

Their prices will experience spikes because "there have not been enough new mines or refineries built," he said. "But we are negative on natural gas. We think there is too much supply out there."

What did we turn up?

Most of the stocks already have had nice run this year.

But Mr. Porter still sees more upside in Petrobank Energy and Resources Ltd. The company has now become a holding company with major stakes in Petrominerales Ltd. with its South America assets, and PetroBakken Energy Ltd. with its Bakken light oil play in Saskatchewan, he said.

The third leg of Petrobank is its heavy-oil extraction technology "that it is trying to prove up right now," he added. "Petrobank could easily trade at $60 a share in a year if oil stays in the $60 (U.S.)-to $80-per-barrel range."

The fund's top holdings include Coastal Energy Ltd., which has onshore-and offshore-producing projects in Thailand. The company is making "some major discoveries of wells" offshore, Mr. Porter said.

"The company is producing about 10,000 barrels a day," he said. "They are expected to continue to grow next year to 14,000 or 15,000 barrels a day. It is easily an $8 (Canadian) stock a year out if oil stays in the $60 (U.S.)- to $80-range."

European Goldfields Ltd., which has gold and base metal assets in Greece and Romania, also has more upside, he added. "It is in the final stages of getting final permits to reopen some mines."

The company is a potential takeover target once it gets those permits so it could be a $10 stock, Mr. Porter suggested. "Once a company has done all the heavy lifting and has got the environmental permits, then companies come in and do the takeover at that point."

***

Top holdings for Front Street Resource Performance Fund to Sept. 30, 2009
Company nameSymbol$ Price Dec. 852-wk high $52-wk low $YTD % price chg% yieldP/EMarket cap. ($-mil)Volume
Petrobank Energy and ResourcesPBG-T49.2051.9117.05144.20.037.64,574.5347,040
Petrominerales Ltd.PMG-T18.2418.745.00220.20.024.01,790.3194,191
Pacific Rubiales EnergyPRE-T14.7515.972.05583.10.00.03,165.01,482,432
Sino-Forest Corp.TRE-T18.0420.016.5279.30.012.43,973.8498,051
Coastal EnergyCEN-X5.796.151.03269.80.00.0548.4114,939
Goldcorp Inc.G-T42.2448.3729.0811.90.425.430,949.12,575,586
Canadian Natural ResourcesCNQ-T66.9179.0035.8537.70.612.536,281.12,272,353
European Goldfields Ltd.EGU-T6.487.751.8496.60.00.01,165.7422,534
Agnico-Eagle MinesAEM-T64.5177.3238.085.20.3150.010,094.91,363,833
Ivanhoe MinesIVN-T13.0514.452.68306.70.00.04,937.91,021,332
Excludes private companies and non North American-listed stocks. Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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