June 22, 2001

Advantage Energy Income Fund formerly Search Energy Corp. (AVN.UN on TSE), Calgary, AB, tel: (403) 261-8810. Price: June 22/01: $11.28, 52-week range equivalent: $13.60-6.40.  First mentioned in this newsletter at the equivalent $10.40 on April 3/01, and last comment at the equivalent $11.92 on May 12/01.  Search Energy was reorganized into Advantage, an oil & gas royalty income fund on May 29, 2001, on the basis of one unit of Advantage for every 4 shares of Search.  The fund declared its first payment of 28 cents/unit for July 16 and a second similar payment for August 15, 2001.  The reserve base of the fund is comprised of 60% natural gas, the net asset value is considered to be $13.60/unit and the debt/cash flow ratio is forecast to be 0.6 to 1 at year-end 2001.  Amount of units to be outstanding will be 12.7 million on a fully diluted basis.  Daily production for the period June 1, 2001 to Dec.31, 2001 is assumed to be 23.6 mmcf/d of natural gas and 2, 640 bbl/d of crude oil and NGL.  Employing benchmarks of Cdn$6.50/mcf and US$26/bbl, the fund expects to generate cash available for distribution of $21.4 million over that 7-month period, or $1.68/unit, paid monthly at 28 cents/unit.  During the March 1Q, the fund produced at a daily rate of 27.4 mmcf/d natural gas and at 2, 542 bbl/d oil and NGL.  At the current trading price of $11.80, the units yield 28.4% on the planned yearly payment of $3.36/unit.

Akrokeri-Ashanti Gold Mines Inc. (YAG on CDNX), Toronto ON, Tel: (416) 361-0923, Price: June 22/01: $0.17, 52-week range: $0.26-0.08.  This is the first mention of the company in this newsletter.  Akrokeri, through its subsidiary Bonte Gold Mines, produced 68,623 ounces of gold last year from its Jeni low cost gold alluvial operation in Ghana and is slated to extract 76,000 ounces in 2001.  Cash costs in 2000 were US$160/ounce, down from US$172 a year ago.  Bonte began operations in 1991 and has steadily increased production each year, starting at 5,000 ounces in 1992 rising to its current rate.  Reserves appear to be added at a rate of 100,000 ounces/year over a base of some 150,000 ounces and at a grade of 1.61 grams per cubic metre.  Year 2000 produced revenues of US$19.2 million, cash flow of US$5.2 million, or US14 cents/sh, and net of US$1.4 million, or US3.5 cents/sh.  During the March1Q, revenues were US$5.2 million, cash flow US$1.7 million, or US4.1 cents/sh, and net of US$0.6 million, or US1.4 cents/sh.  Production in the 1st Q set a new record of 19,858 ounces and the cash cost was further reduced to US$152/oz.  Bonte has exploration potential on its mineral licences covering 75.8 sq.km.  Akrokeri’s other Ghanaian subsidiary, Goldenrae Mining, has a fully operational floating processing plan to produce 25,000 ounces of gold per year and leases & prospecting licences with stated reserves of 200,000 ounces.  Akrokeri, once it has completed its due diligence, may earn a 100% interest on the Antonieta property located on the east side of the Andes mountain range in southeast Peru.  The 18 sq.km concession holds one area containing 100 million cubic metres with an estimated possible resource of 1 to 3 million ounces of gold on which a small-scale ground sluicing mining operation has been in existence since 1989. The company has managed to extend the maturity of a Cdn$2.5 million secured note until June 30, 2002 on which partial redemption are being made using cash flow, but still has outstanding Cdn$4.2 million of an 8% convertible debenture due October 31.  If this is not extended in time, the conversion feature could produce an additional amount of shares outstanding, for example hares if converted at 30 cents/sh.  Currently there are 42.4 million shares outstanding on a fully diluted basis and there exists 5 million warrants exercisable at Cdn22 cents/sh until Dec 19, 2002.

Allied Oil & Gas Corp. (AOG on TSE), Calgary, AB, Tel: (403) 265-9782. Price: June 22/01: $3.00, 52-week range: $3.40-0.73.  This is the first mention of the company in this newsletter.  Allied is a junior oil & gas firm with exploration and production in two core areas: southeastern Alberta and central Alberta.  Production at the moment is 78% natural gas and the company has 480 low-risk shallow gas drilling opportunities earmarked over the next 3 years over its 100,000 net acres.  The March 1Q marked the 5th consecutive quarter of record financial results.  Production of 2,568 boe/d produced revenues of $9.3 million, cash flow of $6.4 million, or 28 cents/sh.  There are 21 million shs out on a fully diluted basis.  Management is forecasting cash flow for 2001 of $24 million, or $1.15/sh.  Using a yardstick ratio of 3.5, this implies a stock trading level of $4.  The company has recently retained the investment firm, Griffiths McBurney & Partners as financial adviser to help maximize shareholder value.

Atlas Energy Ltd. (AED on CDNX), Calgary, AB, Tel: (403) 215-8313.  Price:June 22/01: $2.80, 52-week range: $3.40-0.96.  This is the first mention of the company in this newsletter.  Atlas is an oil & gas exploration and production company holding 75,000 acres in core areas of central and southern Alberta.  In the March 1Q, Atlas produced on a daily basis 8.7 mmcf/d of natural gas and 505 bbl/d of oil & NGL, or combined the equivalent of 1,958 boe/d.  This produced revenues of $8.2 million, cash flow of $5.1 million, or 27 cents/sh and net of $2.3 million, or 12 cent/sh.  There are 18.2 million shs out, on a fully diluted basis.  During the quarter, Atlas participated in 12 wells through a capex of $4.4 million.  For the year 2001, the company expects to drill 33 wells (21 net) through a capital budget of $12.5 million.  Management expects during 2001 to produce at a rate of 2,400 boe/d and generate a cash flow of $20 million, or $1.00/sh, with earnings of 40 cents/sh.  If these targets are met, a stock trading level of $3.50 could be met.

Christopher & Banks Corporation (CHBS on NASDAQ), Plymouth, MN, Tel: (612) 551-5198. Price: June 22/01: $33.15, 52-week range: $47.50 –12.67.  Last mentioned at $40.18 on May 12/01, first covered on April 8/00 at $10.93 adjusted for two 3 for 2 splits.  On June 7, the company reported that month of May same-store sales were flat, year over year..  May 2000 was a very strong month when same store sales had increased by 24%, so it would have been difficult to improve on that.  Poor weather this year was the cause.  For the first quarter ended June 2, 2001 same store sales increased 9%.  Total sales for the quarter increased 36% to $57.6 million. Net income increased 34% to $6.6 million, or 38 cents/sh compared with 29 cents last year.  Brokerage firm Dain Rauscher Wessels is calling for earnings of $1.86/sh this fiscal year and $2.29 for next year.  The Company opened 43 new stores during this first quarter and currently operates 315 stores in 29 states in the northern half of the US and will be opening a further 40 stores before year end.  The Company’s stock was recently added to the Standard & Poor’s Small Cap 600 Index. The recent stock price correction allows an investor a new entry point with a price target over the next 12 months aiming for 20 times that $2.29/sh estimate.

Cigar Oil & Gas Ltd. (CGR on CDNX), Calgary AB, Tel: (403) 266-3030.  Price: June 22/01: $1.00, 52-week range: $1.19-0.31.  This is the first mention of the company in this newsletter.  Cigar is a junior oil & gas exploration and production company operating in Alberta.  The company should be increasing its production rate in the June quarter, its final quarter of fiscal 2001, to 200 bbls of oil per day and to 2,600 mcf/d from a rate, during the first nine months, of 93 and 1,239, respectively.  To accelerate its rate of growth, Cigar has completed a stock issue of 1.5 million shares at 75 cents/sh accompanied with 850,000 warrants to subscribe to additional shares at $1.  This will bring total outstanding to 17.6 million shares and 19.65 million on a fully diluted basis.  The current stock trading price appears to represent full value, but the company bears following because of its small base from which to grow.

Courage Energy Inc. (CEO on TSE), Calgary, AB, tel: (403) 266-4422. Price: June 22/01: $5.12, 52-week range:$5.15-2.50. First mentioned in this newsletter at $3.65 on Apri3/01 and last covered at $4.40 on May 12/01. The Company’s management and its board of directors have accepted a cash take-over offer at $5.20.  Fortunately, the recent take-over offer of Velvet Exploration by El Paso is being done at a more than reasonable level.  Otherwise, take-overs  of companies such as Courage, Tethys, Player and Magin appear to be taking place at less than optimum value.  This leaves one to hope that the windfall exercise of director’s and officer’s stock options are not overriding the ordinary shareholder’s interest.

Gauntlet Energy Corporation (GAU on TSE), Calgary AB, tel: (403) 216-8660. Price: June 22/01: $5.45, 52-week range: $6.50-1.10.  This is the first mention of the company in this newsletter.  The company has two main core areas, Northern Alberta where drilling is done in winter and Central Alberta where drilling is year round.  Gauntlet has a 50% interest in a natural gas discovery at Hamburg in northern Alberta.  The pool is estimated to contain 30 billion cubic feet of raw gas.  An 11 km pipeline was constructed to tie into existing area infrastructure, but the well, capable of producing at a rate of 20 mmcf/d, is currently restricted to 10 mmcf/d capacity.  Another 6 locations targeting the same horizon are licensed for drilling next winter.  During the March 1Q, Gauntlet’s production averaged 2,491 boe/d an increase of 50% y/o/y, composed of 13.6 mmcf/d of gas and 222 bbl/d of oil & gas liquids.  Current production is at 25 mmcf/d of gas and 200 bbl/d of liquids.  Given the barometer reading of $30,000, the production rate of 4,200 boe/d of quality production renders a share value of $7.60.

Hartco Corporation (HCC on TSE) Montreal, QC, Tel: (514) 354-3810. Price: June 22/01:$2.26, 52-week range: $5.05-0.45. Last covered at $1.35 in this newsletter on May 12/01.  Company reported earnings of $2 million, or 16 cents/share on sales of $174 million for the quarter ended May 5/01.  This brought eps to 32 cents over the last 6 months.  Hartco appears to be on target for earnings of 50 cent/sh for the year. The stock price target mentioned in last month’s newsletter now looks quite attainable.

Nortel Networks Corporation (NT on TSE and NYSE), Brampton ON, Tel: (905) 863- 0000. Price: June 22/01: C$13.50, 52-week range: C$124.50-11.75.  This is the first mention of the company in this newsletter.  The DDIN letter does not comment normally on large cap situations (NT even at these depressed levels sports a cap of C$42.8 billion) but some exceptions are made as was the case when CIT Group was mentioned on Dec.26/99.  The Company will be reporting June2Q results on July 19.  The market has already anticipated that the results will be a disaster.  Included in these results will be a write-down of intangible assets, mainly the goodwill associated with acquisitions.  The non-cash charge of US$12.3 billion will lower the value of intangible assets on the balance sheet by some 60%, from US$20 billion to US$8 billion.  Revenues for the 2001-year should be about US$20 billion, down fromUS$30.3 billion in 2000.  Chances are quite good that revenues will bounce back in 2002 to US$23 billion and could throw off a cash flow funding surplus of US$2 billion.  Over the next 12 months, investors might get over the shock of the share price meltdown and a 30% bounce back from the currently depressed level is quite attainable.

Nycan Energy Corp. (NYE on TSE), Calgary, AB, tel: (403) 264-7377. Price: June 22/01: $1.42, 52-week range: $2.25-0.90. Last mentioned in this newsletter on April 3/01 at $1.61.  The Company reported March 1Q revenues of $5.6 million, cash flow of $3.1 million, or 18 cent/sh, and net of $1.8 million, or 11 cents/sh.  This was accomplished through production of natural gas averaging 6.2 mmcf/d vs 5.4 a year ago and oil &NGL of 279 bbl/d vs 253.  Nycan added 12.6 thousand acres and now holds rights on 55,000 net acres.  It has identified 138 gas locations and 45 oil locations to drill.  By means of a $16.6 million capex drilling 77 wells having an average working interest of 51%, the Company expects for 2001 to average daily production of 1700 boe/d, up from 1200,  generate cash flow of $13.8 million, or 77 cents/fdsh, and net $7.6 million, or 42 cents/fdsh.  Nycan has 16.7 million shs out, 17.9 million fully diluted.  Using a barometer of $30,000, the 1700 boe/d assigns an undiscounted share value of $2.85, and a 3 times cash flow gives it $2.31.

Purcell Energy Ltd. (PEL on TSE) Calgary, AB, tel: (403) 269-5803, Price: June 22/01:$4.35, 52-week range: $5.12-2.60.  Last mentioned in this newsletter at $4.75 on May 12/01.  The start of gas production at Fort Liard combined with sharply higher commodity prices is having a beneficial effect on PEL’s production and cash flow generation.  Production in the March 1st Q averaged 4,034 boed and the company is well on its way of reaching a production rate of 5,000 boe/d.  The reserves added during this latest quarter replaced production by a factor of 3.5 times.  Company continued acquiring acreage and now has undeveloped land holdings of 298,000 gross (80,000 net) acres. Capex for 2001 is $48 million and management feels comfortable enough with its bank debt level that it aims to buy back 2.2 million shares over the next 12 months.  Last year, PEL bought back 2 million shares.  Company has 26.2 million shs out. Company has calculated its net asset value at $6.45/sh using a 10% discount factor and is forecasting cash flow per share of $1.67 for this year.  Assigning a 3.5 multiple to this yields a possible stock price of $5.85.

Real Resources  (RER on TSE) Calgary, AB, tel: (403) 262-9077.  Price: June22/01: $3.94, 52-week range: $4.80-2.55.  Last mentioned in this newsletter at $4.11 on May 12/01.  March 1Q production of 3,568 boed (60% oil-40% gas) produced cash flow/sh of 42 cents and eps of 12 cents.  During the 2ndQ, natural gas production will increase by 4 mmcfd to12.7 mmcfd and the company will be drilling 37 gross (22 net) wells.  All told, year 2001 calls for the drilling of 75 gross (45 net) wells within a capex of $30 million.  Expected cash flow of $30 million, or $1.50/sh, will cover these expenditures. RER is heading toward a production rate of 4,200 boed and if this is capitalized at $30,000/boed it yields an undiscounted value of $6.30/sh.  Expected cash flow of $1.50/sh factored at a 3.5 multiple yields a value of $5.25/sh, based on 20 million fully diluted shares.

Shermag Inc. (SMG on TSE), Sherbrooke, QC, Tel: (819) 566-1515, Price: June 22/01: $9.00, 52-week range: $10.00-6.00.  This is the first mention of the company in this newsletter.  Shermag is a vertically integrated producer of good quality residential furniture.  Its 3 hardwood sawmills, a plant specializing in components and a veneer plant feed the 10 medium-sized furniture manufacturing plants.  Sales are made primarily through major department stores in the US and Canada.  For example, Marshall Field’s awarded Shermag the “Vendor Excellence Award” for 2000.  In the year completed March 31, 2001, revenues rose 6.9% to $169.4 million and net earnings rose 20% to $13.3 million, or $1.00/sh compared with last years 83 cents.  There are 13.3 million shares outstanding.  The Company shows 10 years of solid growth and it therefore appears the share price should better reflect this, perhaps supporting a p/e multiple in the 13-15 range.

Wheaton River Minerals Ltd. (WRM on TSE) Toronto, ON,  Tel: (416) 860-0919 Price:June 22/01: $0.79, 52-week range: $0.97 -0.34.  Last mentioned in this newsletter at $0.38 on Dec 28/00.  The Company has completed a restructuring of its board of directors bringing on heavyweights with experience in both investment banking as well as in mining exploration.  In addition, good drill results were obtained at the George Lake venture with Kinross Gold Corporation and the news coming out of the Bellavista gold prospect in Costa Rica is positive.  However, with the recent stock issue of 11 million shares at 55 cent/sh, total shares outstanding now become 63.6 million shares.  Add to that the 11 million warrants to subscribe for additional shares at 75 cents/sh, Wheaton is getting to the point where at the current stock trading level, the market is giving a value of $60 million to the company.  This looks to be a little rich.

Zargon Oil & Gas Ltd. (ZAR on TSE), Calgary AB, Tel: (403) 264-4992, Price: June 22/01: $7.11, 52-week range: $7.70-3.60.  This is the first mention of the company in this newsletter.  Zargon is an oil & gas exploration, development and production company operating in the Western Canadian sedimentary basin.  A publicly traded company since 1993, Zargon has delivered 29 consecutive quarters of positive earnings, a weighted average 15% return on equity and a proven finding & development cost of $5.91/boe. For the March 1Q, natural gas production increased 45% to 18.2 mmcf/d and oil & NGL increased 10% to1,924 boe/d.  On an equivalent basis, production rose to 4,957 boe/d.  This produced revenues of  $21.0 million up from $9.1 million, cash flow of $10.6 million, or 71 cents/sh, up from $4.4 million and net of $5.3 million, or 36 cents/fully diluted share, up from $1.8 million.  During the quarter, the Company spent $8.2 million drilling 22 wells (19.6 net).  Until recently, the program for year 2001 was to spend $35 million drilling 45 net wells over its 213,000 net acres of undeveloped land, up from 39 wells last year.  Production was earmarked for 5,100 boe/d and cash flow for $27.5 million, or $1.77/sh.  This will now change as a result of Zargon’s announced acquisition of Herc Oil Corp. for $25 million (cost $4.35/bbl for 5.75 million barrels of oil equivalent 98% 30 degree API oil).  Herc’s reserves are located in the Williston in SE Saskatchewan and North Dakota.  This will now bring Zargon’s production up to a rate of 6,160 boe/d.  The Company subsequently announced it was raising $14 million through a stock issue of 2 million shares at $7.05/sh.  This will leave the company with debt of about $50 million, or 1.3 times projected cash flow.  Zargon will then have about 17.8 million shares out on a fully diluted basis.  Giving a $30,000 value to the high quality and long life 6,160 boe/d produces an undiscounted share value of $10.40.


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