Saskatchewan's resource sector is full of good investment opportunities
CALGARY - Saskatchewan is among the fastest growing economies in Canada thanks to its burgeoning resource sector, led by oil, fertilizer, uranium and grain.
And as the Prairie province sheds its "have not" status, many Saskatchewan-based companies have been showing up on investors' radar.
Saskatchewan is home to the world's biggest fertilizer producer, uranium miner and Canada's largest grain handler, companies that provide investors with potential gains as resource and agricultural markets continue to boom.
But some of the biggest buzz is around oil and gas explorers, a sector more often associated with Saskatchewan's energy juggernaut neighbour, Alberta.
Joanne Hruska, vice-president of portfolio management at Calgary's Aston Hill Financial, said she is a big fan of Crescent Point Energy Trust, which has oilwells in southern Saskatchewan.
"They are by far the biggest, most successful, best-run company in the whole Saskatchewan oil game," Hruska said.
"They have spent the last few years building up a large land base in Saskatchewan and their stock price has done very well. But I still think there's a lot of value left in that."
Another established company Hruska highlights is TriStar Oil and Gas Ltd., which also produces conventional crude oil in southeast Saskatchewan.
Some smaller Saskatchewan energy players to watch include Reece Energy Exploration Corp. and Painted Pony Petroleum Ltd., she added.
Saskatchewan is home to the Bakken trend, a geological formation that has the largest conventional oil pool discovered in Canada in more than 50 years.
Unlike the heavy oilsands crude produced in Northern Alberta, Bakken oil is light and sweet - meaning it is easier and cheaper to refine and can be sold for a better price.
Another up and comer is Oilsands Quest Inc., which has been exploiting oilsands acreage in northwest Saskatchewan, an extension of the massive deposits in neighbouring Alberta.
Hruska said she is intrigued by Oilsands Quest's recent appointment of Jamey Fitzgibbon - a former OPTI Canada executive - as chief operating officer.
OPTI and its partner Nexen Inc. are employing a new extraction technology at their joint Long Lake oilsands venture in Alberta, which is set to come on stream later this year.
The fact that a relatively small player has attracted an executive from such a high-profile company bodes well for Oilsands Quest's future, Hruska said.
Also garnering attention recently is Saskatchewan's booming fertilizer industry, since the province holds some of the world's largest deposits of potash.
Potash prices have been steadily increasing in recent years, going for as much as US$1,000 a tonne on some spot markets.
For now, a heavyweight like Potash Corp. of Saskatchewan Inc. is in a better position to deliver cash to investors than its junior counterparts.
On Thursday, the Saskatoon company reaped its best-ever quarterly earnings of $905.1 million, up by 220 per cent from $285.7 million in the second quarter of last year.
The world's biggest producer of crop nutrients also said its April-June sales almost doubled over a year ago, to $2.62 billion from $1.35 billion, which "reflects rising global fertilizer demand and the impact of significantly higher prices for potash, nitrogen and phosphate products."
"Potash is virtually printing money. It's out of control how much money they're making," Hruska said half-jokingly.
However, Scotia Capital analyst Sam Kanes downgraded PotashCorp and fellow fertilizer producer Agrium Inc. in an industry commentary Thursday, saying higher prices could erode global demand.
"We are now downgrading both stocks due to rising fertilizer demand destruction risks as fertilizer prices soar and food prices recede," Kanes wrote in a note to clients.
"The daunting thing on Potash mines tends to be finding the money to develop it," said Salman Partners analyst Raymond Goldie.
"The average Potash mine these days costs $2 billion to bring on stream."
It also takes a great deal of time for those mines to begin production, with juniors like Potash One (TSXV:KCL) slated to start up by 2013 at the earliest, Hruska said.
"We have neither a love nor hate for junior potash producers, but we prefer Potash and (Calgary-based) Agrium Inc. (TSX:AGU)because they're actually able to take advantage of the cash flow at this time," she said.
A company that has also been cashing in on the farm economy boom is Viterra Inc. (TSX:VT), a Regina-based grain handler formerly known as Saskatchewan Wheat Pool.
After its acquisition last year of Agricore United, Viterra has boosted efficiency and profits and is a major player in the grain and farm inputs business across Western Canada.
Saskatchewan is the world's largest producer of uranium, the yellow ore used to fuel nuclear power plants, and is home-base to Canada's pre-eminent uranium miner, Saskatoon-based Cameco Corp. (TSX:CCO).
"Cameco we like because it's the biggest and most liquid place," Goldie said, noting that the average uranium mine takes 11 years to come on stream.
"The biggest thing in uranium is you have to be very careful with it and it takes a very long time to permit it," he said.
Goldie highlights Denison Mines Corp. (TSX:DML) as another uranium company that is producing cash flow from its uranium operations in Saskatchewan.
Hruska said her firm only began buying uranium stocks in the past few months.
"I love Cameco. It's one of my favourites," she said.
Uranium prices have been decreasing recently, but as nuclear energy becomes a more and more attractive option for power generation, it's value will likely go up.
"The whole uranium sector is very interesting," Hruska said.
16:55ET 24-07-08
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