Zeev's Turnips Patch-No Politics (ZEEV)

[Joe Bob]

Dan, did you see this negative WHT article?

http://www.moneysense.ca/investing/stocks_markets/columnist.jsp;jsessionid=NCANHNKIGFPH?content=2002....

Dark clouds for Wheaton River?
"Market Trends" by Larry MacDonald

Wheaton River Minerals Ltd. is currently one of the hottest listings on the TSX. Over the past 12 months, shares in the Vancouver, B.C.-based gold-mining company have nearly tripled in value while appearing regularly on the list of most active stocks.

Yet, a dark cloud hangs on the horizon. The number of shares sold short has climbed more than tenfold to 34 million since mid-2003. The ratio of short sales to daily trading volume has accordingly escalated from one to five.

That would seem to be a bearish sign. As noted in a recent, award-winning academic paper on short selling (see my Jan. 29 column, Watch the short sellers), large short positions tend to mean bad news.

Might the short sellers, a group who make their money betting on falling prices, be on to some negative stuff? Are there some skeletons in the collection of properties the company is rapidly accumulating via serial issuance of stock and debt? Are there shenanigans in its financial statements or corporate governance?

Time will tell. But one uneasy omen is insider selling. For the latest three months of data available, eight Wheaton insiders sold and none bought. Maybe two or three could have been overlooked, but eight is hard to dismiss as simply a matter of diversifying portfolios and/or raising cash for junior's tuition fees.

Another uneasy omen is what some might interpret as aggressive accounting. Namely, for the nine months to Sept. 30, several million dollars in costs were capitalized (relating to debt issuance and gold-put options) and several more million dollars in one-time gains (asset sales and foreign exchange) were included in net income.

If these factors are adjusted out, earnings per share would be reduced by half to $0.04. That still shows some growth over the $0.02 reported for the nine months of the previous year, but it is nonetheless a much less vigorous trajectory than the headline figures.

Then there are the backgrounds of the shakers and movers behind the Wheaton bandwagon. Let's start with Ian Telfer, Wheaton's current chief executive. His prior experience at the helm of a now defunct gold mining company, Vengold Inc., was not exactly illustrious.

When moribund gold prices failed to rescue Vengold from its aggressive pursuit of mining properties during the 1990s, Telfer had to dispose of most of the company assets to pay off debt due. But that was not before interest-free loans of $1.1 million to executives were forgiven.

In 1999, Telfer changed Vengold's name to Itemus Inc. and set up shop as an Internet incubator (financed with cash left over from sales of mining properties). Within two years, following a succession of hi-tech acquisitions at the top of the market, Itemus was bankrupt.

Next is Frank Giustra, a former chairman of Yorkton Securities and the money man behind Wheaton's transformation. In 2001, he injected capital into the then sleepy firm through his private investment firm, Endeavour Financial Ltd. (which has an office in an offshore-account haven, the Cayman Islands).

Put in charge of Endeavor's portfolio was former mutual-fund star, Veronika Hirsch. Remember her? She had to leave her portfolio job at Fidelity Investments Canada in the mid-1990s following charges that she had illegally bought warrants in a gold-mining company.

Lastly, there is Eugene McBurney, advisor to the Wheaton board. He is also chairman of investment dealer Griffiths McBurney & Partners, a lead underwriter of Wheaton's many share issues.

McBurney was called to testify before the Ontario Securities Commission (OSC) in 2001. His firm, which underwrote stock issued by YBM Magnex International Inc., was accused of failing to disclose a knowledge of the company's link to Russian mobsters.

And press reports in 1989 show that a director of Consolidated Grandview Inc. by the name of Eugene McBurney had an earlier run-in with regulators. For his alleged role in issuing misleading press releases and failing to report material changes, he was fined $75,000 and had his trading privileges suspended for 15 months.

But short sellers are not known for their timing, or even for always being right. Wheaton could go on frolicking in the sun for some time yet.

With their strong tape action, the company's shares are tailor made to be the plaything of day traders, momentum investors and technical analysts. Wheaton couldn't be sitting up prettier for this buy high, sell higher bunch.

What's more, index funds have to buy the company's stock since it was added to the S&P/TSX Composite Index last year. The TSX Index Committee should get a commission: index funds are now compelled to keep on buying the shares of the company whenever its index weight increases as a result of new share issues or price gains.

Doesn't this have the markings of a momentum play like the Nortel Networks episode during the tech boom? Similarly, a vast misallocation of capital may be the end result, but for the buy-on-strength group, it may be a way to score big while the crowd is running.

Finally, the price of gold will play a key role. If it keeps going up, the company's aggressive growth-by-acquisition strategy, rising indebtedness, and dilution of equity may be validated.

But watch out below if gold falters, something that cannot be ruled out. For example, if the U.S. economy finally gathers momentum and passes into a self-sustaining upturn, that could reverse the descent of the U.S. dollar, and in turn, gold's ascent.

Feb. 05, 2004

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A pretty bad fluff piece IMO.

P.S. The author failed to mention copper hitting 1.18. I feel more comfortable owning the likes of WHT and NXG in this environment, although I plan to look more at your GBN this weekend...