May 12, 2001

ARC Energy Trust (AET.UN on TSE) Calgary, AB  tel: (403) 292-0680. Price: May 11/01: $12.77, 52-week range: $13.00-9.70. First mentioned at $9 on Feb 4/00 and last reviewed at $11.31 on April 3/01.  The trust reported an excellent first quarter which included the performance of Startech Energy acquired in January.  Production increased 93% to 44,271 boed from last year’s 22,972.  This produced cash flow of $0.96/sh vs $0.56.  Conservatively run, the trust paid out only 60 cents to unit holders.  However, the payout has been increased from a monthly 20 cents to 22 cents for April and will likely stay at this level for the remainder of the year.  At the current price, the units trade to yield 20.7%.

Avid Oil & Gas Ltd (AVO.A on TSE) Calgary, AB  tel: (403) 303-8200 Price: May 11/01: $5.73, 52-week range: $5.82-2.17.  Last mentioned in this newsletter at $4.45 on April 3/01.  On April 30, Husky Energy Inc (HSE on TSE) offered to buy all class A shares it did not own at $5.85 a share and all class B shares it did not own at $10/sh.  This is another example of the lack of fairness allowed to a certain type of voting shareowner in contrast to those owning multiple voting shares.  Nevertheless, Husky has agreed to tender its shares to any competing bid in excess of $6 for each class A share.  Avid has just come off an excellent 1st quarter where revenues increased 61% from $11.6 million to $18.8 million, cash flow 64% to $11.1 million, or 48 cents/sh and net income 119% to $6.9 million, or 29 cents per fully diluted share.  Debt is about one-half expected 2001 cash flow. The company’s land position has increased to 100,000 net acres and Avid expects to exit the year with production at a rate of 7,200 boed.  These projections point to a value in excess of $6/sh.  This could very well prompt a competing offer, an increase by Husky for the class A shares or, possibly, rejection by minority shareholders.

Baytex Energy Ltd. (BTE on TSE) Calgary, AB, tel: (403)  Price May 11/01: $12.00 C$, 52-week range:$16.70-9.00. This is the first mention of the company in this newsletter.  BTE has made a series of acquisitions in the oil patch that has diminished its reliance on the production of heavy oil and increased its natural gas participation.  Nevertheless we are entering into the season when heavy oil is used in asphalt and the price difference between light & heavy crude narrows.  The company should average 42,000 boed in 2001 with a further increase of 10% in 2002.  On a fully diluted shareholder base of 54.2 million s.o.s., this should produce a cash flow of about $220 million, or $4.05/sh.this year.  Given a multiple of 4, Baytex stock exhibits a $16.00 value.  Taking an average production rate of 42,000 boed and assigning a multiple of $30,000 produces an evaluation to the company of $1.26 billion, or $23 a share.  This in itself could make BTE a takeover candidate.

Biotransplant Incorporated (BRTN on NASDAQ) Charlestown, MA, Tel: (617) 241-5200. Price: May 11,2001: $7.10, 52-week range: $18.50-2.97.  This is the first mention of the company in this newsletter.  The company utilizes its proprietary technologies in re-educating the body’s immune responses to allow tolerance of foreign cells, tissues and organs.  It is developing a portfolio of products designed to treat a range of medical conditions for which current therapies are inadequate, including organ and tissue transplantation, cancer and autoimmune disease.  BioTransplant’s AlloMune System is currently under clinical evaluation for therapy-refractory lymphoma, with potential application in other types of cancer, kidney transplantation, hematological and autoimmune diseases. The company is in the process of acquiring Medford,MA-based Eligix in a stock transaction, issuing 6.6 million shares, bringing the total out to 18.4 million.  Eligix is a privately held biomedical company engaged in the development of cellular transplantation and immune therapies to enhance human immune response to cancers and infectious diseases. The two companies have complimentary technologies and BioTransplant believes that its AlloMune System will benefit from Eligix’s devices.  The acquisition seeks to move the resulting entity from a development stage to that of a commercial.  For example, Eligix has one late stage pipeline product, which entered Phase III clinical trials in 2001, and another expected to enter Phase III in Q1 2002.  These two products are expected to add near-term European revenues beginning this year.  Lazard Asset Management has been acting as financial advisor to BRTN.  It is believed that Lazard Freres will pick up coverage of this, to date, overlooked biomed stock.

Bonus Resource Services Corp (BOU on TSE) Calgary, AB, Tel: (403) 347-3737.  Price: May 11/01: $4.70, 52-week range: $4.70-2.60.  First mentioned at $0.76 on May 15/96, last mentioned on December 30/98 at $1.50.  Taking advantage of the high level of activity in the oil patch, Bonus produced fine results for the 1st quarter ended March 31.  Revenues of $106.7 million increased by 44%, EBITDA of $42.7 million increased 59% and earnings of $21.3 million, or 21 cents/sh increased 85%, all over the corresponding quarter of last year.  Profit margins expanded as a result of increased rates charged, $486 per operating hour for service rigs vs $389/hr. last year, and for drilling rigs $18,862 per operating day vs. $15,413 a year ago.  Common shares will be consolidated on a 1 for 4 basis Tuesday May 15 and the company will change its name to Enserco Energy Service Company Inc., symbol ERC on the TSE.  Number of shares outstanding will consequently go from about 105 million to 26.2 million. Year 2001 earnings of 70 cents/sh on the old basis would become $2.80 on the new shares.  If the market decides to award the stock an 8 times multiple for Enserco, operating in a cyclical industry, a share price over the next 12 mos. of $22-23 is realistic, $5.60 on the old basis.

Christopher & Banks Corporation (CHBS on NASDAQ), Plymouth, MN, Tel: (612) 551-5198. Price: May 11/01: $40.18, 52-week range: $42.97 –9.67.  First mentioned on April 8/00 at $10.93 adjusted for two 3 for 2 splits, again on Dec 28/00 at the adjusted $18.67, and last covered on April 3/01 at $26.44.  On April 11, the company reported that 4Q sales rose 51% to $68 million, same store sales rose 16% and that net income rose 62% to $8.5 million, or 50 cents/sh.  For the year ended March 3, sales increased 46% to $209 million, same store sales 18% and that net income rose 121% to $25.5 million, or $1.50/sh.  The trend is continuing in the new year, where sales for the 5-week period ended May 5, 2001 rose 39% to $22.6 million, with same store sales increasing 12%.  The company opened 32 new stores in March and April and plan on opening 11 new stores in May.  Currently, the Minneapolis-based specialty retailer of women’s clothing operates 304 stores in 29 states, located primarily in the northern half of United States.

CIT Group, Inc (CIT on NYSE, CGX.U on TSE) Livingston, NJ  Tel: (973) 535-3506 Price: May 11/01: US$36.00, 52-week range: $36.94-13.00.  Last mentioned in this newsletter at US$20.75 on Dec 26/99. The CIT Group and Tyco International Ltd. (TYC on NYSE) have entered into a definitive agreement whereby Tyco will acquire CIT in a tax-free stock-for-stock exchange.  CIT shareholders will receive 0.6907 Tyco shares for each share of CIT.  This newsletter, as a consequence, will drop coverage of the company.

Courage Energy Inc. (CEO on TSE), Calgary, AB, tel: (403) 266-4422. Price: May 11/01: $4.40, 52-week range:$4.80-2.50.   Last mentioned in this newsletter at $3.65 on Apri3/01.  Company released its results for the first quarter ended March 31, 2001.  Revenue increased 182% to $28.7 million, cash flow 134% to $12.5 million, or 49 cents/sh and earnings 323% to $7.7 million, or 30 cents/sh.  Production during this period averaged 5,860 boed, a 40 % increase.  Debt and working capital deficiency of $39.5 million represents 0.79 times annualized cash flow.  Courage has followed up the 15 million cubic feet per day discovery well at Balsam, Alberta with another encountering similar pay, reservoir quality and productivity and plans to connect this to pipeline in June.  The company is currently producing 28 mmcf/d of natural gas, 1,250 bpd of oil and natural gas liquids, i.e. 6,680 boe/d on a 6:1 ratio.  Management feels that the Peace River Arch is one of the last remaining areas in the Western Canadian Sedimentary Basin capable of offering potential for significant, high impact, exploration discoveries.  The company has a 132,000 net acre domestic land position in Alberta and B.C. plus operations in the U.K. (356,000 net acres, production at Fiskerton in the Midlands Basin), Denmark (187,635 net acres holding 3 large undrilled structures) and France.  There are currently 25 million shares outstanding.

Freehold Royalty Trust (FRU.UN on TSE) Calgary, AB  tel: (403) 221-0802.  Price: May 11/01: $9.75, 52-week range: $10.10-6.70. Last covered in this newsletter at $8.60 on Dec 28/00.  Production during the 1stQ of 2001 came in at 5,709 boe/d vs. 5,182 a year ago.  Distributable income for unitholders increased to 53 cents/unit from 34 cents.  As a result Freehold is increasing the monthly distribution to 12 cents from 11 cents and is paying an extra 22 cents in June, for a total of 23 cents/unit.  To date payouts have been free of tax but 45 to 50% may become taxable in 2001.  The trust is in the process of issuing 3 million treasury units at $9.65/unit, which will raise the total amount outstanding to 29.7 million units, 30.8 million fully diluted.

Hartco Corporation (HCC on TSE) Montreal, QC, tel: (514) 354-3810. Price: May 11/01: $1.35, 52-week range: $5.05-0.45. Last covered in this newsletter on November 17/95 when mentioned that at $8.75 the shares offered limited upside potential. Company is a leading provider in Canada of computing and communication solutions.  Its business networks MicroAge, Metafore and Northwest Digital is found in 76 locations.  Retail networks include 46 Compucentre locations and 19 CompuSmart superstores.  Communications Division includes 34 The Telephone Booth Stores.  Shareholders equity is $58.9 million, or $4.53 per share on the 13 million shares out.  At Feb 3, 2001 working capital was $42.1 million, or $3.24/sh.  Company earned 16 cents/sh on $191 million sales in the last Q ended Feb 3, a 1.09% profit margin.  If HCC can maintain this profit margin on $700 million sales for 2000-01, profits of $7 million, or 50 cents a share, will have proved that the company has made the turnaround.  That being the case, a 6 times multiple would indicate a $3 share price.

Inex Pharmaceuticals Corporation (IEX on TSE) Vancouver, BC, tel: (604) 419-3200. Price: May 11/01: $6.65, 52-week range: $10-3.26.  Last mentioned in this newsletter at $3.71 on April 3/01. On April 30, 2001, Inex reported that it had formed a joint venture with Elan Corporation PLC (ELN on NYSE) for the development and commercialization of Inex’s lead product, Onco TCS, now being evaluated in human clinical trials as a treatment for a number of cancers.  Inex could receive up to $60 million in financing related to the joint venture and an upfront $7.5 million purchase of Inex common shares.  OncoTCS is in a pivotal phase II/III clinical trial as a treatment for relapsed aggressive non-Hodgkin’s lymphoma.  Last year, Elan acquired the Liposome Company of Princeton, N.J., a biotechnology company dedicated to the development of propriety lipid and liposome-based pharmaceuticals.  The contribution by Elan to this new venture with Inex of certain of Liposme’s intellectual property will strengthen the position of OncoTS and will eliminate the need to pay certain third party royalties Inex had previously anticipated.

NAL Oil & Gas Trust (NAE.UN on TSE) Calgary, AB, tel: (403) 294-3600. Price: May 11/01: $10.95, 52-week range: $11.40-7.35.  This is the first mention of the trust in this newsletter.  NAL Oil & Gas Trust is an open-end investment trust created in May 1996 to acquire a royalty on high-quality producing oil and natural gas properties from NAL Energy Inc.  Its oil and gas are marketed using a blend of short term and fixed pricing contracts, without entering into so-called hedging.  For example, 80% of NAL’s gas sales are influenced by the current spot price.  The trust reported distributable income of $23.3 million, or 86 cents/unit, for the March 1stQ, a 148% increase over the $9.4 million, or 49 cents/unit a year ago.  In addition to strong commodity prices, these results were produced through a 34% interest in production to 8,592 boe/d compared to 6,400 last year.  Consequently, payout to unitholders is being increased to 23 cents monthly from 20 cents.  The trust maintains a conservative balance sheet with a net debt to cash flow ratio of 0.3 times.  This permits the trust to consider further acquisitions.  There are 27 million units outstanding.  At this payout rate, the units yield 25%.

PrimeWest Energy Trust (PWI on TSE) Calgary, AB, tel: (403) 234-6600. Price: May 11/01: $9.91, 52-week range: $9.99-7.20.  This is the first mention of the trust in this newsletter. In acquiring Cypress Energy Inc in March 2001, PrimeWest climbs into the large-cap tier sector of oil and gas royalty trusts.  In addition, it becomes Canada’s largest gas-weighted royalty trust.  Following the acquisition, there will be 100.6 million units outstanding.  The trust reported, pre-Cypress, 1stQ revenues of $72.5 million were 11% higher than the $34.3 million a year ago, while cash flow of $43.5 million, or 79 cents/unit compared with $17.9 million, or 50 cents/unit.   Cash available for distribution to unitholders was 60 cents compared with 30 cents a year ago.  Production came in at a rate of 16,864 boe/d, up 12% y.o.y.  Cypress will be adding 18,200 boe/d to this figure.  Capital development programs for 2001 are expected to come in at $80 million. The trust is currently paying 22 cents/unit per month and expects to maintain that rate through January 2002.  Roughly 50% is taxable, the balance considered a return on capital.  The $2.64 pay-out provides a current yield of 26.6%.

Purcell Energy Ltd. (PEL on TSE) Calgary, AB, tel: (403) 269-5803, Price: May 11/01: $4.75, 52-week range: $5.12-2.60.  This is the first mention of the company in this newsletter.  The start of gas production at Fort Liard combined with sharply higher commodity prices is having a beneficial effect on PEL’s cash flow.  Production in 2000 almost doubled to average 2,322 boe/d.  In the 4thQ, average production reached 3,390 boe/d and in the first Q of 2001, not yet reported, was estimated at 4,000 boe/d.  The company is now forecasting full year 2001 production to average 5,000 boe/d and using budgeted commodity prices of $6.50 mcf/d and US$25 for WTI sees cash flow coming in at $43 million.  This equates to $1.51 per fully diluted share (28.5 million fds).  If given a mutiple of 3.5 times, this suggests a stock price of $5.28.  If the 5,000 boe/d figure is assigned a multiple of $30,000, the stock price then becomes $5.26.  Under these scenarios, it appears that PEL shares are approaching full value.

Real Resources  (RER on TSE) Calgary, AB, tel: (403) 262-9077  Price: May 11/01: $4.11, 52-week range: $4.80-0.75.  This is the first mention of the company in this newsletter.  Real Resources is a junior oil and gas exploration company operating in Alberta and Saskatchewan.  Over the last year, it has evolved from being primarily an oil producer (90% oil) to one that currently has a 55/45 oil/gas mix.  During 2000 average daily production increased 71 % to 2,937 boe/d.  During the 4thQ, this had reached 3,557 boe/d.  The increased production came from successful drilling programs at Alida West and Virginia Hills along with the acquisition of Prism Petroleum late in the 3rdQ.  At year end a further 12 wells were awaiting tie-in to facilities.  These are expected to add 3 to 4 mmcfd at the end of 1stQ 2001 to the current base of 8.6 mmcf/d.  Net capital expenditures in 2000 were $28.8 million compared to cash flow generation of $22.7 million.  This left Real with debt at year end of $22.7 million.  Cash flow is estimated at $30 million for 2001, equivalent to $1.50/sh  and should cover the expected $30 million in capex..  Using a 3.5 multiple to the anticipated $1.50 cfps produces a stock value of $5.25.  Applying a $30,000 factor to the anticipated 4,000 boed, produces a $6 value to the stock, based on 20 million fully diluted shares.

Royal Aviation Inc. (ROY on TSE), Montreal, QC, Tel: (514) 828-9000 ext 2270.  Price May 10/01: $3.27, 52-week range: $3.72-1.06.  First mentioned in this newsletter on Dec 22/97, and last mentioned at $2.15 on Dec. 30/98 where it could be a take-over candidate.  This happened in April of this year when Canada 3000 Inc (CCC on TSE) offered 0.4 of a share for each ROY share. Compulsory acquisition was announced on April 27 and Royal shares were delisted on May 11.  At the current CCC price of $8.40 this is now equivalent to $3.36.  Coverage of ROY is now discontinued.

Search Energy Corp. (SGY on TSE), Calgary, AB, tel: (403) 261-8810. Price: May 11/01:$2.98, 52-week range: $3.40-1.60.  First mentioned in this newsletter at $2.60 on April 3/01.  The company announced that it will ask its shareholders to vote on May 23 to convert the company into a royalty trust and a name change to Advantage Energy Income Fund.  For each 4 shares of Search, the holder would receive 1 unit of Advantage.  Management proposes to initiate monthly distributions of 28 cents (equivalent to 7 cents per Search share) resulting in annual income of $3.36 per unit (equivalent to 84 cents a share of Search).  This implies a yield of 28.2% based on the current trading price of SGY.  Conversion to trust units will be considered a taxable event for Search shareholders owning stock outside of a tax deferred plan, such as a RRSP.

Skechers USA, Inc. (SKX on NYSE), Manhattan Beach, CA. Tel: (310) 318-3100. Price: May 11/01:$36.35, 52-week range:$37.60-10.56.  Last mentioned in this newsletter at $23.71 on April 3/01.  The company announced results for the 1stQ ended March 31, 2001.  Sales increased 71% to $227.5 million, net income came in at $17.1 million vs. $6.7 million a year ago.  Fully diluted earnings were 45 cents/sh compared with 19 cents a year ago in spite of there being 2.5 million more shares outstanding, now at 38.1 million shs.  Gross margins improved to 43.7% from 40.2%.  Management explains the success to Skechers strong brand name supported by equally strong advertising. The company has initiated marketing their lifestyle footwear into the U.K. and Germany.

Storm Energy Inc.  (SME on TSE) Calgary, AB  Tel: (403) 264-3959  Price: May 11/01: $10.10, 52-week range: $10.25-4.00.  First covered at $2.30 on Dec 26/99 and last mentioned at $8.73 on April 3/01.  The company reported very strong results for its 1stQ, ended March 31, 2001.  Production income increased by 235 % to $43.2 million from $12.9 million a year ago and by 14% over the $38 million in the 4thQ of 2000.  Cash flow from operations rose 222% year over year and by 22% over the previous quarter.  Net income grew by 294% to $9.3 million ( 32 cents per f.d. share) from $2.4 million (9 cents/sh) a year ago and by 27% over the $7.3 million in the 4thQ.  In addition to strong commodity prices, oil and gas production increased by 112% to 9,560 boe/d in the quarter from that of 4,175 last year and by 30 % over the 4th quarter.  Storm spent $27.2  million on capex in this 1st quarter and expects to spend $50 million in 2001.  Projected cash flow of $59 million over the next 3 quarters will more than cover the remaining $23 million of capex budgeted and will be applied to paying down debt and working capital deficiency, which stood at $83 million on March 31.  With cash flow per share approaching the $3 level, a 4 times multiple to take into account above average growth would render a share value heading for $12.

Summit Resources  (SUI on TSE), Calgary, AB, tel: (403) 269-4400. Price: May 11/01: $6.55, 52-week range: $6.83-3.00.  This is the first mention of the company in this newsletter.  Summit after having retrenched in exploration in 1999 embarked on an active oil and gas exploration program in 2000 which is carrying on into 2001.  In the 1st Q of 2001, ended March 31, the company produced revenues of $59.9 million vs $25.5 million a year ago, a 135% increase.  Cash flow from operations was $33.3 million, or $1.04/sh, an increase of 148% over the $13.4 million (40 cents/sh) last year and an increase over 4th Q figures of #22.3 million (70 cents/sh). Production increased to 13,662 boe/d from 11,067.  The strong component was the natural gas production which averaged 52.3 mmcf in the recent quarter compared with 40.7 mmcf a year ago and higher than the 4th Q average of 48.1 mmcf.  The company does not have financial hedges in place so that 85% of its gas production is exposed to market pricing.  Long term debt represents 0.7 times annualized first quarter cash flow.  Summit has been buying back shares on the open market.  There are now 32 million shares outstanding.  Management estimates cash flow of $108 million for 2001, equivalent to $3.37/sh.  A reasonable 3 times multiple to this implies a share price of $10.

Tesco Corporation (TEO on TSE, TESOF on NASDAQ), Calgary, AB, tel:(403) 233-0757.  Price: May 11/01:$19.15, 52-week range: $19.35-10.00.  First covered in this newsletter on Oct. 20/97 and last mentioned at $6.20 on Dec 29/98.   Reflecting the improved levels of activity in oil and gas drilling, the company reported good results for the March first quarter.  Revenues of $60.1 million produced net income of $8.1 million, or 24 cents/sh.  While revenues came mainly from its top drive rentals, Tesco during this period began commercial sales of its proprietary casing drilling systems. This has the potential to dramatically change the way oil and gas wells are drilled in the future.  With casing drilling, wells are drilled without drillpipe.  The standard oil field casing remains in the hole at all times.  This eliminates the time required to trip or remove and reconnect the drillpipe.  The company is in line to produce revenues of $270 million this year and earnings of $36 million, or $1.10/sh on the 34 million shs outstanding.  This would compare with last year’s revenues of $155 million, income of $8.5 million and e.p.s of 26 cents.  While a projected 17.4 times p/e appears high for a company operating within a cyclical industry, the advanced technology Tesco has in casing drilling sets the company in a league of its own.

TransAlta Corp.  (TA on TSE) Calgary, AB  Tel: 1-800-387-3598. Price: May 11/01: $26.25, 52-week range: $28.40-15.25.  First mentioned on Dec 26/99 at $14.85 and last reviewed at $21.45 on Dec 28/00. The company announced strong results for the 1st Q of 2001: revenues of $808 million vs $315, cash flow of $386 million, or $2.29/sh vs. $127 million, or $0.75/sh and net earnings of $68 million or 40 cents/sh vs. $55 million or 33 cents/sh.  Much of this activity is the result of electric power demand in California and the Pacific Northwest.  TransAlta has made effective use in feeding high price electricity from its Centralia power plant in the state of Washington.  It is debatable whether the energy crisis will continue for any great length.  At best, 2001 earnings could come in at $1.60/sh vs last years $1.08. That would provide the stock with a p/e ratio of 16.4, high for a power utility.  Furthermore, TA’s balance sheet, as usual, is highly leveraged. At March 31, the company had a working capital deficiency of $222 million and its long term debt of $2,073 million exceeds common shareholders equity of $1,977 million.  On the positive side, the $1.00/sh dividend appears secure.

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