Hello charred;
You may find this article culled from Investor Digest Feb 12th/99 issue, it is a brokerage house comment on PDG??
Please do not read this as an anti PDG fact or thought, I have suffered enough financially being exposed to PDG over the past two years. It is also why I follow them so intently, not as you have surmised just because I'am a shareholder of KRY??
Placer Dome
MAISON PLACEMENTS CANADA INC.
Placer's cart is overloaded
From a recent report by analyst John Ing.
It is our view that Placer Dome Inc.'s (PDG-TSE, $19,
604-682-7082) quest
for growth in reserves will hurt its multiple and thus result in at best,
sideways
performance.
While we expect the current rally in gold and gold stocks to continue
over
the next month or so, we would utilize this strength as a selling
opportunity and
perhaps a switch into Barrick or even into the second tier group of
stocks such
as Kinross, Meridian Gold, Agnico Eagle or Goldcorp.
Placer Dome has gone on a shopping spree, and like shopping on
Amazon.com, there is no one to tell you that the shopping cart is too
full.
Currently, Placer's earnings will benefit from the lower cost Campbell
Red
Lake and Pipeline deposits which should ensure at least another
year of $0.33
per share.
Also, Placer Dome's substantial hedge book will help out earnings
and, like
Barrick, will make more money from hedging than from mining some
of the gold
mines.
Placer Dome's Pipeline mine in Nevada is the crown jewel and will
produce
about 1 million ounces this year, but will decline to 750,000 ounces
next year.
Thus, without a major exploration discovery, acquisition or a rising
gold price,
earnings prospects beyond this year appear to be flat to down. It was
only last
year that the gold industry (including Placer) was in a rationalization
mode,
closing high cost mines after an orgy of spending in the quest for
growth in
ounces.
Placer Dome plans to acquire Getchell Gold Corp. in Nevada in an
all paper
deal of US$1.08 billion valued at US$34.45 per share. Getchell
shareholders were
offered 2.45 share of Placer and the offer was a whopping 113 per
cent premium
over the US$16.19 per share close before the announcement.
The offer was about $10 more than our most optimistic valuation of
Getchell.
The premium offered was due to Placer's desire to jump the line in
the auction for
Getchell as well as its assessment that Turquoise Ridge could be
expanded by
40 per cent.
It is our understanding that the ground problems cited by Getchell
earlier
have not reoccurred nor have the water problems. Getchell currently
has a total
reserve and resource base of almost 20 million ounces (10 million
mineable).
We believe the Getchell acquisition will hurt Placer's earnings, cash
flow
and the aggressive price paid for Getchell leaves little room for error.
The increase in the risk profile, more aggressive spending and a
weaker
balance sheet together with the dilution will mean that Placer's
earnings this year
may well prove to be the peak for the next while.
In late fall of last year, Placer Dome reached an agreement with
Western
Areas of Johannesburg to form a 50/50 joint venture that will develop
and operate
the South Deep, the largest undeveloped gold deposit on South
Africa's
Witwatersrand.
What attracted Placer is undoubtedly the ore reserve of 59 million
ounces of
which South Deep accounts for 52 million ounces. The acquisition
doubles
Placer's proven and probable ore reserves.
To acquire its 50 per cent interest, Placer Dome paid Western Areas
a
whopping US$235 million as well as a royalty.
Placer is relying on its engineering. However, operating conditions in
South
Africa are different from anywhere else in the world. What is also
amazing is that
Western should have paid Placer to assist in a technically
challenging effort, not
the other way around.
The Western Areas deal has been around for some time and only
Placer
has risen to the bait. Again, it appears that Placer has increased
their risk profile,
sacrificing its balance sheet in its quest for bragging rights of ''bigger
is better.''
Last year, Placer successfully fended off a lawsuit over the ownership
of
Las Christinas in Venezuela. The victory, however, may be pyrrhic in
that the
deposit still has to be financed.
A combination of high yield debt, gold loans and project debt will be
needed
but the internal rate of return is still negative at current prices. We see
little profit
here.
You also mentioned that San Gregorio was for sale for a long time, and that Fung set the price??.......there were six bidders on this property??
Getchell Gold was also for sale in this time frame, why did PDG find it so necessary to offer so much for Getchell?? What are your thoughts regarding this deal??
This broker has also raised similar concerns over the Western Deeps project, if you look I raised the same concerns in some of my posts, not necessarily here but on the other fourm's??
Would you also like to comment on the fact that PDG has been high grading their reserves over the past year or two, and how this will ultimatley affect their future??
Have you also noticed that there was a record increase in the short position for PDG over the past three months??
So many things to ponder??
With regards,Frank |
