San Lorenzo Gold Corp V.SLG.RT

RE: Pescod newsletter today - Complete Version

[scissors14]

STERLING RESOURCES (V-SLG) $3.00 -0.86

We’ve written a lot about the stumble in commodity

prices and resource stocks over the last while and it’s certainly

not as much fun as when the market was so generous

just a few months ago.

We certainly hope Bill Carrigan, who we think is one of

the best technical analysts out there, is right...that it’s time

to buy uranium stocks now and over the next four to six

weeks we will see the bottoming for oil and gold stocks,

emphasis on oil, natural gas and gold, apparently not so

much for copper, silver and a few other things if Carrigan is

right.

But it’s definitely an ugly day for one of our favorite stories,

Sterling Resources. I guess the only person having less

fun today than us would be the good folks at Sprott who

own 28 million shares of Sterling, according to the last report.

But of course, on a day like this it feels like we own

that many as well anyways.

The irony is, on a day like today, one person joked, Sterling

could have drilled into the North Sea and discovered a

gold mine and no one would have cared. In a market like

this, you put out news and its an opportunity to sell.

The results announced today are not quite straightforward

or an announcement you’re used to seeing. As one

follower of the story suggests, the results, if you were a geologist

were a success...if you’re an accountant, it’s a failure.

To us however, while we’re down and out today on this

story, it remains one of the more intriguing ones out there

for their vast array of stories, but the company in the last

few weeks has had a lack of joy. They say things come in

threes, well for them it’s been fours.

First of all, you have the ugly markets in general. Secondly

you have the news that the British government was

going to be looking at increasing taxes, which put the North

Sea under a bit of a cloud. Sterling won’t have to be paying

taxes for many, many, many years, but still there is that

cloud.

Thirdly, was the misadventure in Romania where legal

action is taken to make sure they finally do get to drill offshore

Black Sea.

An area that is truly intriguing because of not one, not two,

not three, but four structures on the way down and all that

production on the Ukrainian side of the Black Sea border suggesting

there could be/might be something significant there.

While it’s an ugly day, the numbers for this story are still

compelling...at least when we get back to more normal times.

Take the Breagh project, which comes on-stream sometime

in the next ten-twelve months. Using 3p numbers, Breagh

could be worth as much as $4 a share, or 2p numbers it could

be worth $3 a share when on production. But until we’re

closer to production, and we all know in oil and gas, anything

that can go wrong could go wrong, it won’t get that credit.

How much is Cladhan worth? Well take a guess. A commonly

used number is 150 million barrels of which Sterling

has 40%. Whether drilling is going to prove that number, or a

lower number or possibly a much higher number. The reason

today’s announcement was a big disappointment was an alluvial

fan could have made the huge jump in resource numbers.

But at 150 million barrels, at $15-$20 value in the ground

(when in production) and they own 40% comes up with a very

tasty number...should be the number that we get to, and once

again that’s the number for down the road.

As for value for Romania or France, still very much open to

debate.

Meanwhile, Cladhan is now two dry holes and four successful

wells, and here are the comments from Kevin Shaw,

who in many ways, has been the lead cheerleader for the Sterling

story and right now is probably not having a lot of joy.

But then in the oil sector in the last two months there as been

no joy. Shaw writes:

• The “Fan System” is still very much ALIVE in terms of

prospectivity...given thick sand packages exist with oil.....the

key is that where this last sidetrack was drilled was in an area

where the oil was not considered moveable....this DOES NOT

mean that there is not commercial oil over other parts of the

fan system (i.e. it is a very large area and the reservoir quality

can change in these types of plays by moving just 500m away)

• Sterling is reprocessing seismic go-forward for the Fan

System and will likely come back later (possible this year) to

drill additional appraisal wells to look for higher quality areas

of the fan system

• A key positive is that the Terrace area is now largely derisked

in-terms of not having water in the system (i.e. oil filled

throughout) given they did not find an oil water contact in this

last fan system appraisal.

• Northern Channel is commercial already (estimated 180

mmbbls in place P50) and the next sidetrack (20 day schedule)

is being drilled into the undrilled Central Channel (estimated

110 mmbbls in place P50) to officially appraise

• Additional appraisals is expected to be required in the

Southern Channel, in between the channels, and of course

back into the Fan System

Even though there was selling pressure this a.m. (way oversold)......

The Cladhan project is still a good place to be as the

appraisal process continues!”

We have to start following other analysts, since maybe

those that are so bullish might be looking at it with too much

hope. First Energy’s comment, written by Stephane G. Foucand

on Sterling is simple, but their target is still intriguing.

“Market Reaction: Negative. The results are disappointing

and pending further details from management may reduce the

value we attribute to Cladhan in our core NAV and risked NAV

as they may reduce our recovery factor assumptions.

Sterling Resources has announced the results of the second

well of a four well campaign at Cladhan. The purpose of

the sidetrack was to appraise the field further east of the previous

210/30a-4 well and evaluate the Upper Jurassic sands

1,000 feet deeper than the previous well. The well results

showed that the sands had an average porosity of less than

13.5% (below 10% according to Encore Oil) and no oil water

contact was identified. License partner Encore indicated in its

announcement of the well results that an oil water contact may

not exist at this location.

We had not attributed any value in our risked NAV to this

prospect, as the well targeted upside case contingent resources,

however the low porosity observed at this depth potentially

may lead to a downward revision of oil in place estimates

and the possible absence of an oil water contact could

indicate a poorer than expected recovery factor. Both of these

issues would have a negative impact on the value we attribute

to Cladhan in our core NAV and risked NAV.”

For those continuing to follow the ongoing Sterling saga,

the next few weeks will continue to be busy...waiting for results

out of Romania and that next well in the Cladhan will

also be quite important as Shaw points out it also, has a big

target.

The saga continues, but hopefully we might be closer to a

bottom in this market correction for commodities.