Zeev's Turnips Patch-No Politics (ZEEV)

[basserdan]

*** Gold related post (WHT) ***

Now that is interesting. The gold pullback I was expecting/hoping for hasn't arrived, and I have only half my WHT in tow. Not complaining, just wondering if I'll ever get an opportunity to pick up some GSS...
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Hi Joe Bob,

Still looking at WHT and GSS?
WHT at 1.71 was .44 off it's recent high
GSS at 3.70 was a buck off it's recent high.
Both representing slightly over 20% pullbacks......
May I ask what kind of a pullback, %wise, are you looking for?

Have you seen 'closet gold bear' Tim Woods' write up on WHT?


The promoter's dream gold market

By: Tim Wood
2003/10/01 Wed 19:31

NEW YORK -- Each year at the Denver Gold Forum, someone has a hoary wisecrack that finds new application. This year’s was reserved for Wheaton River [WHT]: “It’s a boat without a transom. As long as it keeps going forward, it’s fine. But if it stops, it’ll get swamped by its own wake and sink.”
Wheaton markets itself as the snappiest small-to-intermediate-to-large gold company, but cuts some corners along the way like treating its significant copper revenues on a by-product rather than the co-product basis conservatism requires. That is one reason many professionals scorn Wheaton’s rise to prominence, primarily via its prodigious stock issuances that have bought a portfolio of marginal assets with short lives.

Old timers also fuss about the plush new corporate offices in Vancouver. Then there is chairman and chief executive Ian Telfer’s controversial tenure at Vengold, the junior gold company which shareholder equity was carried into an opportunistic “Internet incubator” in 2000 with one of those era-stupid names: Itemus. The dot.com adventure flamed out in mid 2001, just when gold found its legs again.

Yet for all the warning lights, Wheaton may as well be sheathed in Teflon, Kevlar and titanium. Investors comfortable with the sober pinstripe style of the senior producers may not like the hyper promotional Vancouver alternative, but you also don’t want to stand in the stock’s way in a strong gold market.

With its tremendous support from key Canadian financiers and Telfer’s reputation as a fund raiser without peer, momentum has carried Wheaton to $2 per share on Amex. $2 may not sound impressive in this gold market, but remember that Wheaton shares in issue have exploded from less than 100 million in June 2002 to nearly 500 million so far this year. There are few firms that can pull that off.

Wheaton is probably bullet proof as long as gold holds above $350 per ounce to allow the company to settle its starter acquisitions and line up the really big one with serious reserves and substantial production.

The current rumour du jour is that Wheaton is sizing up Gabriel Resources [GBU] which owns a problem plagued deposit in Romania with nearly 11 million ounces of proven and probable reserves.

Gabriel’s value has shrunk to a little more than C$400 million compared with Wheaton’s C$1.3 billon, so a deal is doable at current prices. Not so fast. A Toronto analyst says nobody will put a finger on Gabriel until its permitting process is nearly complete, it has made substantial progress on its village relocation project and the engineering work is good enough to satisfy the bankers.

The analyst adds that Wheaton has no hope of making a bid below Gabriel’s net asset value of C$4.50 based on a gold price of $350 per ounce and applying a 5% discount rate. The value gap aside (Gabriel currently trades at around C$3.10), Gabriel stock is tightly held by a few strong hands whom the analyst says will demand a decent market premium of two times net asset value for a mine producing half a million ounces a year at cash costs of $150 per ounce for a decade.

The top five shareholders command nearly 50% of shares in issue, represented by Dundee, Commonwealth Colonial, Resource Capital, Capital Research and Frank Timis.

At the NAV par price, Wheaton would have to almost double current shares in issue (about 3.5 WHT shares for every GBU) to win. Even that may not be good enough. Weighted average pricing for reserves is running at more than $120 per ounce right now. Add in a competing bid premium and Wheaton could be looking at a minimum ratio of exchange approaching 4:1, requiring 520 million new shares.

On an all-in costed basis at current gold prices and using recent gold M&A deals as a guide, the final price could be closer to $140 per ounce, which works out to more than C$15 per Gabriel unit. On that basis, the ratio of exchange would soar to 6:1 for Wheaton which would need to issue 780 million new shares.

That looks far too large even for Wheaton and the analyst says the institutions holding Gabriel are unlikely to accept Wheaton paper when a permitted Rosia Montana is going to be attracting the likes of Newmont [NEM], AngloGold [AU] and Goldfields [GFI], all of which are understood to have signed confidentiality agreements with Gabriel and may proffer cash with scrip.

Yet stranger things have happened and are happening. Randgold [GOLD] has played itself into position to possibly swallow Ashanti Goldfields [ASL] which is double its size. Now we have Durban Deep [DROOY] trying to prove there is life after death by putting out market feelers for minority stakes in the Porgera, Misima and Martha mines, and the piece of Lihir [LIHRY] that no-one else seems to want.

When promotion meets appetite, there’s no telling what is possible – as long as the boats keep moving forward and the tide keeps rising.

http://www.mips1.net/MGGold.nsf/Current/4225685F0043D1B285256DB200813AAD?OpenDocument