Via The Calandra Report - Subscribe Here - Only $58

HOUSTON -- Are Colombia oil producers nearing a wave of mergers, as asset manager Frank Holmes forecast three weeks ago?

Or was that a nod to investors looking for fresh markers in a cremating market?

Mr. Holmes of U.S. Global Funds quipped "Colombia and oil" into the mix of a New Orleans presentation the other day.

"Fear can spread rapidly," said Frank H, a Toronto broker who built U.S. Global Investors (GROW in USA) into a Texas think tank and no-load mutual fund operator whose managers specialize in metals and offbeat jurisdictions. U.S. Global Investors, or Frank as it is known among resources operators (example, "Well, Frank is in this round."), clocked an average $1.7 billion of "stuff" owned in 40 countries at the close of June 2012.

There are years, gold boom years that traditional investors fear, for instance, when that assets-managed figure is twice as much. There are spans when GROW's growth of assets is below par. Right now, if you own the GROW chart, you get 2 cents a share each month in cash. That is almost a 6 percent dividend thanks to the depressed state of metals and other resource equities.

Frank, who took over a San Antionio, Texas, investment club in 1989, is GROW's largest investor. (I do not own the shares.)

His recent comments came to about 100 conference goers fortunate enough to nick a box lunch of veggie or chicken wraps and observe a 50-minute examination of: 1) gold and metals equities volatility, 2) fund manager bonuses, 3) emerging markets and ... yes, 4, 5 & 6 ... plus that oil comment.(Photo attached: Frank Holmes and Grupo de Bullet's Bob Allen at a dinner -- TC photo)

We seek not to profile Mr. Holmes in this report. Nor shall we examine his GROW charts at present. The techniques of Frank's tightly run proxy for emerging markets -- U.S. Global -- includes a tidy and 100 percent-owned office building; bonus-staked managers, all of them receiving a quantum factor less for base salary than their gorging hedge fund and mutual fund peers; oh, and a pennywise jefe who laments how bottom-barrel interest rates are burdening U.S. Global's resident money market fund to the tune of $3 million yearly. "I could use 10 more basis points," he says to a standing-room audience.

As time and travel will have it, I am mixing in circles that drill and deliver crude oil in Colombia. It was a bit more than two years ago that I was touring Pacific Rubiales Energy's flagship oil field about a 45-minute plane trip from Bogota. Mr. Holmes, whom I have known for about 11 years, was with me. Since that brisk December day, Pacific Rubiales has become a major domo of Colombian oil, having over-promised and over-delivered on its over-promises. (Translation: A handful of well connected Colombian industrialists, oil-friendly Canadians and aggressive American investors have gotten gusher rich on PRE, which was the first overseas company to be listed on a Colombian stock exchange.)

The past couple of years since my visit have been a tumble for PRE, which is I believe Colombia's largest publicly traded oil producer (with some natural gas). Costs per barrel have about doubled to about $12 in the past year because of water-linked expenses that are figuratively swamping both Colombia properties. The shares are down about a third in the past two years since my visit to the oil fields. (Or is it three years now?)

Still, in the reportng period we just saw, Rubiales' Colombia take of about 96,000 barrels of energy per day is rising 5% from the previous three-month average (as of September 30). Much of that bubbles up from the flagship fields of Quifa and Rubiales, known for their heavy oil. As for forward indicators, PRE's board just started what is, at 11 cents every three months, a 2 percent yearly dividend at the current equity price of approximately $22 Canadian.

Those board members see something. Is it the same thing Frank sees is, I suppose, the interrogative.

Mr. Holmes, in what I thought was a piercing use of statistics and dry wit in New Orleans earlier this month (actually, late October -- editor), said, and I quoteth, "I think you'll see a lot of Colombia oil companies get taken over." At the presentation were a number of oil aficionados, including Sally L. Eyre, who received a doctorate from London's Royal School of Mines. Ms. Eyre was a director of corporate development and public relations at Pacific Stratus, Petro Rubiales and Pacific Rubiales - the various moving parts of the current PRE.

My take, for our TCR audience, is that a potential purchaser of all of PRE, what they call "a change of control," would require a multiple far greater than Rubiales' current forward price-earnings figure of about 8. PRE, aside from its prodigious cash flows from oil and gas production, is doubling reserves every two to 2 1/2 years, if I am correct. Rubiales is active now offshore Peru for a miniscule number of barrels per day.

A Colombia government that prides itself on foreign investment flows into the democratic nation almost certainly would bless a "friendly" takeover that increases energy sector jobs and continues state-of-the-art pipeline and cleansing technologies that already are the talk of Latin America. Not to mention hiring practices and salaries that have kept turnover of employees mild compared with industry peers in other emerging or second-nation markets.

Now, if a transactor were, say, a Russia entity hurtling in for the merger/takeover during a quarter or four of income-sheet (but not balance sheet) vulnerability, I might have to hedge my view. Still, even Russia or one of its neighbours can make a case for accelerating what once was a Colombia pipedream into a world leader in terms of both BOEPD and exploration growth. I am sure there are companies as well in Poland, Canada, Brazil and elsewhere that might have an easier go at a PRE run than, say a Russia entity.

We'll see. I'll find out more in a week or two, after I visit Panama for the GMP Securities Latin America conference and Colombia for a tour of Gran Colombia Gold's Segovia mining operation and ongoing social experiment. Interestingly, or not, GMP was PetroMagdalena Energy Corp.'s advisory banker when Rubiales bought the small oiler earlier this year for $240 million Canadian. All cash.

Those looking for an energy stake with an approximately 2 percent annual yield can look at PRE, which I do NOT own. At the current price, the shares alone are about 40 percent below their high. A "swoop" takeover I figure would require a 65 percent premium on the table, at the very least. (Note: I know several of PRE's board members and major shareholders, and they expressed surprise when I related what Mr. Holmes said the other week. Pleasant surprise? I think so, but that is always in the eyes of the beholder.)

As the TCR audience knows, I am lacking recent practice examining energy companies. Colombia oil, to be fair, already has logged a fair bit of merger and takeover activity this year and last, some of it involving Pacific Rubiales Energy. So I'm rusty on petrol.

One way speculative members of our GROWing TCR family might want to stake themselves and future generations of little itty-bitty TCR family to a flurry of energy down south is, I am told, via tiny Petroamerica (PTA in Canada). Hailing from Calgary, PTA is yet another energy company whose shares I do not own. I can count the energies I own on half of one hand.

Petroamerica is a Colombia producer and developer priced at about $140 million. PTA just issued loads of options to executives and recently appointed a merchant banker as an advisor to its board. I will point you to a recent look at PTA, including an interview with CEO Jeff Boyce -- found at Tommy Humphrey's CEO.ca service: Calgary Oil Veteran Jeff Boyce’s Petroamerica: http://CEO.ca/PTA-update/.

As for Frank Holmes, he appears to this beholder to be as heads-over-heels in love with resources as ever. "When this next wave comes, I think we will have another big move in the resources (equities)," he says. Compounding the excitement when that happens (I already think it is happening), will be an orbital release of price gains constrained in large part by slovenly miners and other producers who have lied, cheated, hedged and generally mismanaged their margins/expenses/production. (Oh come on, how does Frank really feel? Not for print, but I have seen, heard and heard of scenes in which Frank Holmes has hammered executives, verbally entombed them, for their capital sins. Not pretty.)

Let's leave it at that.

More on spectra-spec front: My visit to Toronto and Vancouver put me in possession of intelligence that points to formidable mineral assays from gold-silver-copper prospectors Gold Standard Ventures (GSV) and Solvista Gold (SVV). Both are among our anointed TCR. Both are awaiting rounds of assays that could further fuel good to excellent equity gains ... or puncture those gains.

My reporting indicates assay whispers already are floating around the two projects, GSV's Railroad Project in Nevada and Solvista's Caramanta (and Guadalupe) properties in Colombia. The whispers are setting the landscape for what could be landmark results from Nevada in terms of both meters and grade on the gold side, with silver in GSV's adjacent areas; and above-average porphyry grades at Caramanta. Results for GSV could come as soon as this coming week.

If this report is on the mark, Gold Standard Ventures' shares in Canada and the USA will gap above $2 either just ahead of or on the day of published fresh assays. I believe the shares are about $1.60 now. On Solvista? The dynamic likely will see shares travel to a warrant-triggering $1.20 or so from the current 80 cents in the two or three weeks running up to further Caramanta results. Solvista's Guadaulpe, a veined deposit in the Antioquia Batholith, still has a first round of assays pending, and anything is possible there -- including insanely potent gold grades.

I own shares of both. I have, as usual, been to the projects. (Apologia for what can be taken as unbridled enthusiasm. You have to remember, I have been working on these prospects, living and breathing them and mixing with their next of kin, for considerable time now. I've taken down so pages of notes from 68-year-old geologists, 36-year-old field workers, 40-year-old CEOs, my wrists are sore. The candidates we identify for our TCR audience are prime, primed and capable of producing both instant and long-term wealth. Besides, we're in the money on all this stuff. Timing helped.

On the financing front, I expect some of the prospectors cited in this report (inception August 2012) to gather premium-to-market cash from what we call strategic investors. Possibilities on this front include Solvista, NuLegacy Gold, Abitibi Royalties, Seafield Resources and Carlisle Gold. In addition, when Gold Standard Ventures nails another round of HSM assays, as in Holy Shitake Mushrooms!, that Carlin Trend wanna-be also might find itself the recipient of $20 million or more of strategic investor dollars. Time will tell.

NuLegacy Gold (NUG in Canada) is now our leading speculative candidate for a 3x revaluation before year-end. Drilling continues in Nevada at Red Hill. I think this one sets up as an instant orbital on release of its 5 or 6 Central Mineralized Zone holes. That is probably in two to three weeks. I look to purchase more this week.

Off to Panama Monday night via Houston for the GMP Securities conference for select Latin America companies. I will be meeting with Gran Colombia Gold, Endeavour Silver, Grupo de Bullet, Continental Gold, maybe Pershimco ... one or two others. Afterwards, off to Medellin and then Segovia to see Gran Colombia's (GCM) operations in upper Antioquia. As already stated here, I do not own GCM shares. A buying opportunity might occur on Monday or Tuesday, in the wake of a third quarter earnings report from the Colombia gold and silver producer. Webcast here is scheduled for Monday.

Those interested can view Daniela Cambone's Kitco News interview of Gran Colombia Gold's CEO, Maria Consuelo Arajaujo. It is concise. See video. I am tracking the community relations, toll mining, hospital building and other social spending initiatives at GCM's El Marmato and Segovia projects. I will be the first, after five years of Colombia visits (2o and counting now), to tell you exactly what is going down in these gold and silver producing regions of what once was Latin America's largest precious metals producer.

But not until I get my next box lunch.

Later.

Your friendly neighbourhood,

Thom Calandra

Thom Calandra is a researcher, writer and investor. TCR is published twice weekly, sometimes more. His portfolio is listed by ticker under tcalandra at Stockhouse.com. He has no affiliation with Stockhouse. Thom also is a consultant to Torrey Hills Capital, a California investor relations firm. He is not an investment adviser. Nor is he a member of Mensa International.