Dan, did you see this negative WHT article? ===============================================================
Hi Joe Bob, Please excuse my tardy response. A flock of "snowbirds" flew in from CUBStown yesterday and my lovely wife just now retracted her threats to leave me if I dared to try logging on to my Dell. <g>
No, I hadn't seen that article nor am I familiar with the author, but it sure reminded me of some of the FUD articles written by the anti-Rambus camp when I was following that stock.
For whatever reason, clicking on the link you provided accesses the MoneySense.Ca website, but has an "article does not exist" notation. I wonder if it has been pulled?
I haven't had much time to check into MacDonald's allegations, nor do I intend to, but even if 100% accurate, I don't see sufficient reason to do more at this time than to watch the price action for further clues.
His comment that "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." seems ludicrous to me, as if WHT should have not bothered to claim the income on their earnings statement.
Yahoo's five day chart of WHT's price action shows an early morning break on Thursday, the day the article came out (2-5-04) with it closing at the day's high and the strength continuing through yesterday's session.
Interestingly, I came across another MacDonald article dated 1-29-04 entitled "Watch the short sellers."
Despite it's length, he only mentions one company, Wheaton River, and that mention comes in the final two paragraphs and suggests to me that MacDonald may have his own agenda w/r WHT:
"If one gives the published short sales data a look, they will see a few interesting things. Of note is a red flag on a currently popular stock, one that regularly makes the top-ten most active list and has nearly tripled in price over the past year: gold-mining company Wheaton River Minerals Ltd.
The short position has risen nearly steadily on this interlisted stock (TSX and AMEX), from 2 million on May 30, 2003 to 34 million on Jan. 15, 2004. Concomitantly, the ratio of short sales to daily trading volume has climbed from one to five. Does some bad news lurk on the horizon?
I appreciate the heads up, JB, and will keep it in mind, but as of now, I'm of the opinion that WHT's recent NR that they will be "doubling their production by 2006" is reason to hold on for further gains.
G'morning Joe Bob, I find it interesting that WHT would put this out on a Sunday night....
Wheaton Reports 325% Increase in Production and 66% Reduction in Cash Costs for 2003 Sunday February 15, 8:00 pm ET
VANCOUVER, British Columbia--(BUSINESS WIRE)--Feb. 15, 2004--Wheaton River Minerals Ltd. ("Wheaton") (AMEX: WHT - News; TSX: WRM - News) is pleased to report a 325% increase in production to 450,000 gold equivalent ounces in 2003 compared to 106,000 gold equivalent ounces in 2002. In 2003, cash costs decreased by 66% to US$62 per gold equivalent ounce, compared to US$182 per ounce in 2002. Reserves increased by over 600% to 5.3 million gold equivalent ounces and resources more than doubled.
Ian Telfer, Chairman & Chief Executive Officer of the Company said: "2003 was a pivotal year of growth for Wheaton with production more than tripling in a period of rising gold prices. Present mine development activities in Brazil and Mexico will allow Wheaton to double production again by 2006. All operations have delivered and all have proven profitable. We believe our resources in Australia, Brazil and Mexico are only just beginning to be understood. We look forward to the year ahead and continue to believe we are in an environment in which gold, silver and copper prices will continue to rise. This will result in continued success for Wheaton and its shareholders."
Luismin Operations
Continued investment into Luismin's San Dimas operations in Mexico has resulted in the lowest operating costs in the history of this prolific mining district. Increased exploration and development spending has produced some of the highest grades since the original San Luis vein was discovered over 100 years ago. Consolidation of processing operations into the Tayoltita mill was completed in 2003 and the San Antonio mill has ceased operating as planned. A 25% process capacity expansion at Tayoltita will be completed over the next two years.
At San Martin, 2003 saw the commencement of development into the Cuerpo 30 orebody, and the first delivery of ore from the neighboring San Pedrito project. Cuerpo 30 is a fault offset of the main San Martin orebody, and production grades to date have been higher than expected. Drilling continues testing the strike and dip extent of the orebody. A 20% increase in plant capacity is scheduled for 2004-2005.
Peak Operations
The Peak Gold Mine in New South Wales was acquired by Wheaton in March 2003, and aggressive exploration resulted in seven drills exploring for and defining orebodies along the Great Cobar Shear, host of all the historic production in the district. The campaign was extremely successful, with the high grade Perseverance orebody being extended substantially to depth, and significant mineralization being encountered in the Peak Deeps area. The upper reaches of Perseverance began production in 2003, and mining methods were improved in the New Occidental orebody.
Alumbrera Operations
Bajo del la Alumbrera continues to achieve results better than the plan. Wheaton is excited about the reserve and mine plan review scheduled to be completed by July 2004, as current reserves and mine planning are based on US$301 gold and US$0.82 copper. With mineralization known to extend to depth below the current pit design, the potential to extend the life of Alumbrera is high in light of current gold and copper prices.
Amapari Project
Construction has commenced at the Amapari Gold project in Brazil, with site clearing, access road construction, and foundation preparation underway for the process facilities. Condemnation and final delineation drilling is underway, and further exploration is planned for the second half of 2004. Amapari is scheduled to start producing gold late in 2005.
Los Filos Project
At the recently acquired Los Filos Gold development project in Mexico, metallurgical, geotechnical, and condemnation drilling is underway. Independent Mine Consultants of Tuscon, Arizona has been selected as lead consultant for the preparation of a final feasibility study during 2004, with support from Golder Associates of Denver, Colorado and McLelland Labs of Reno, Nevada. Los Filos is scheduled to commence production in early 2006.
Production Outlook
In 2004, Wheaton expects to produce approximately 540,000 gold equivalent ounces at a cash cost of less than US$50 per ounce, based on current metal prices. By 2006, Wheaton plans to bring the Los Filos and Amapari projects into operation increasing overall production to 900,000 gold equivalent ounces at cash costs of less than US$100 per ounce.
Hi Joe Bob, Larry Macdonald has written a companion piece to that 'hatchet job' he penned on 2-5-04.
Wheaton revisited
"Market Trends" by Larry MacDonald 2-12-04
Last week's column on Wheaton River Minerals Ltd. deserves a follow-up given the unusual number of responses from readers and the disagreement many voiced with an "overly negative portrayal" of the company. In the interests of presenting both sides of the story, a summary of the main points follows below.
Fundamentals
Wheaton's fundamentals are among the strongest within the group of mid-tier gold miners. While many of its peers reported losses in the third quarter, the company was one of the few that was profitable. And it is on target to report a profitable fourth quarter.
Earnings growth is outpacing issuance of equity. Earnings per share has gone from a loss of $0.45 (CAD) in 2001 to a profit of $0.04 (U.S.) in 2002 to a projected profit of $0.12 (U.S.) in 2003 (results to be released Apr. 7, 2004).
Wheaton's cash cost per ounce of gold is under $100 (U.S.), after allowing for copper and silver production. Reserve growth has been among the highest in the industry, and an 80% increase in production is scheduled over the next two years. Earnings from copper (40%) and silver (10%) production provide diversification.
Valuation
Wheaton's forward price-to-earnings ratio, based on projected earnings per share of $0.16 to $0.22 for 2004, is in the 12 to 17 range. By comparison, the forward price-to-earnings ratio for the sector is greater than 40. The company's forward price-to-cash-flow ratio, based on cash flow per share of $0.32 to $0.36 projected for 2004, is in the 7 to 8 range — compared to the sector average over 25.
Institutional ownership
Fidelity Investments owns 72 million shares across several mutual funds, over 10% of the amount outstanding. Wheaton is the second biggest holding in U.S. Global Investors Gold Shares. Three other U.S. gold funds have the company in their top five holdings.
Short selling
A rise in short selling is not unusual given the increase in the number of shares from 190 million to 566 million within the past year or so. Furthermore, it is "highly possible, if not probable" (as one reader wrote) that some institutions were locking in profits on their warrant holdings by shorting the shares.
Published TSX short-selling data aren't disaggregated enough to confirm this possibility, but one reader indicated that the surge in short selling near the end of 2003 signaled as much. Such trading activity was consistent with institutions boosting their year-end cash position (for window-dressing purposes) while simultaneously deferring taxes for a year.
Even if the short position mostly reflected naked short selling, said others, it would be a positive sign as it represents "pent-up demand." The shares shorted have to be bought back at some point, and given Wheaton's revenues and earnings growth, the naked shorts would likely get squeezed into a short-covering rally.
Insider selling
Salaries paid to executives of junior companies are not high and insider sales are a way to supplement income. Moreover, the recent insider selling in the case of Wheaton was due to the cashing in of options that were scheduled to expire. One insider did make a major disposition, but he was an executive who was terminated.
Accounting
Even if one-time factors such as currency fluctuations are stripped out, Wheaton's earnings far surpass those of its peer group. Moreover, there were deferred earnings of $5.6 million reported in the last set of financial statements, which would have raised reported net earnings.
Management
Ian Telfer, Wheaton's chairman and CEO, has many fans among Wheaton shareholders. The general sentiment is that his performance has been stellar. Said one: the transformation of Wheaton River has been "absolutely stunning," considering the company's losses and tapped-out reserves when he took over in 2001.
Gold fundamentals
The price of gold (and copper and silver) is likely to remain strong. Among other factors, supply/demand imbalances are supportive.
Wrap-up
As best as I could determine, those were the main points received from readers who took issue with the depiction of the company. I wish to thank all who took the time to write in. Feedback — good, bad, and ugly — is always a chance to learn and get better.
Was the article overly negative? It was in that not all the aspects of the case were covered (e.g., insider selling reflecting the cashing in of options near expiration). The lesson for me, which I will be practicing henceforward, is to make more certain that all the angles are dealt with.
Is Wheaton a good investment? As suggested in the original article, I think it depends on one's risk tolerance. Personally, I get uneasy when a company is built up quickly through acquisitions and joint ventures. I believe the potential for unforeseen events, such as production delays, is higher.
I may end up watching a shooting star from the sidelines. But the greater satisfaction for me will be in adhering to a disciplined investment approach, one that calls for staying within self-prescribed risk thresholds.
By the way, I am not a short seller of Wheaton shares (or in cahoots with the short sellers). Nor would I recommend short selling to the average investor — it is hard to do and comes with the potential for greater losses.
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