Good morning mainehiker..... Are you still following RGLD?
March 10, 2003 Royal Gold & Barron's Hatchet Job
Mr. Dempsey, of Royal Gold, might have spent more time on the subject of Barron's hatchet job of Royal Gold but he has stated an effective defense against the unique means Barron's selected to determiner valuation. If you want to have some fun you should apply that article's method of valuation to all the major producers.
Mr. Dempsey provides three methods of valuation common to the industry, none of which were reviewed in the Barron's. I recommend that the community listen to his presentation that was taped and is offered on www.royalgold.com under "Presentations"
1/ The option valuation method includes the option value on future production would take the length of time, the potential earnings and underlying commodity value into consideration. That approach applied to Black Scholes would be orders of magnitude greater than the Barron's hone spun methodology.
2/ The earning production method, if applied to the valuations given the producers on earning, would also result in much higher valuations than Barrons Hatchet job did over the ten year period.
3/ I've already outlined the comparable valuation method to you. Mr. Dempsey used the same method and made the same comparison to Franco Nevada. When I outlined that method, I adopted the Barron's approach to last years earning times ten. Using the Barron's method, I pointed out that the value came to slightly over $57 per share.
Now lets turn our attention towards Barron's Financial Weekly. I know Barron's very well. I was a partner of Vilas & Hickey when Warren Wells was that firm's major trading account. I sat just to the left of my other partner, Joe Werkmeister, who represented Warren Well's interest. I have a memory like an elephant when it comes to transactions, prices, situations and how they gained their pricing.
I have seen over 70 letters to the editor that were sent to Barron's concerning Royal Gold. Many of these were excellent in the sense of their manners, articulation, presentation, and knowledgeable of valuation. You will notice that Barron's failed to carry even one of these letters. In reading what they did publish, I can only conclude that this reveals their mind set on this situation.
The Real Question Is:
Was the Three- Day "Trashing" of Royal Gold Legal Long Sellers Or Illegal Short Selling, So Common Today?
I would suggest that unless Royal Gold asks the SEC to look into this situation, we will never know. The tactic used so often by offshore hedge funds is to establish a legal short first. This will explain many of the present large short positions in gold shares as compared to their capitalization. When the opportunity presents itself the illegal short sales are made in a violent manner to trash the price of the share. It is in the trashing of the price that the illegal short sales take place devoid of up-ticks so as to demoralize the price by relentless selling into all the bidders at progressively lower levels. Sellers always result in more selling. The illegal short sales trades are made, backing the transaction up through a location where settlements rules, in terms of days until the share has to be delivered is much longer than the US rules require. The reason they do this is that nothing creates an avalanche of selling like driving the price of anything down. The old saying is "Sellers beget sellers & buyers beget buyers."
In order to make cover there has to be an avalanche of selling. Cover is not necessarily made via buying the stock. These stealthy operators, simply to complicate the matter and hide from authority, occasionally cover their short positions via purchases of over the counter calls that are "mirror type" options structured as to reflect the form of the listed options on the situation. This explains why the short positions seem just to sit out there and grow bigger as if no cover is ever made. Cover is made but via other instruments. The weakness in this situation, for the perpetrators, is that there is always a paper trail out there. That trail it is usually on the illegal short sale for the trashing. Usually to further hide the transaction, one dealer is interposed between the culprit and the final illegal short sale into the market. Whenever the build up starts of a large reported short position in a gold share, be prepared for the slam-bang on price lower more than likely coming.
This last period has to be classic. In the last two weeks, I have read no less than nine articles in major publications of one nature or another concerning the ill-advised rise in the value of gold and gold shares. Never in my now 44 years have I seen more intense use made of the media to attack an investment medium. Then came the assault against the leader, Royal Gold. Was that event an accident or coincidence? I personally I doubt that it was coincidence.
I wonder if Royal Gold really knows what appears to have happened to them. I wonder if Royal Gold will prevent this from happening again by making an official request for an investigation. I assure you that I would demand it. If it is made only as a simply request, the SEC might be too busy chasing another 16 year old trying to do a pump and dump on the Internet as gathered for them some big headlines a few years ago. All I can say on that accomplishment is "Neat catch guys that was a real dangerous threat to the financial world." Meanwhile illegal shorts continue to operate in the most transparent of ways using the media to their advantage.
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