Russ,
Bought WHT @US$1.03 :^(
... days before Bob Bishop's GMSR 1/22/03:
Wheaton River (WRM.T/$1.57) -- Last week Wheaton announced its latest acquisitions, a 25% interest in the Alumbrera copper-gold mine (Argentina) and a 100% interest in the Peak gold mine (Australia), with both interests being sold by Rio Tinto. The consideration will be US$210 million, with up to one-third of the purchase price subject to deferral for up to two years. That provision will allow Wheaton to avoid hedging in order to consummate the transaction, but it will have a significant financing in its future, about which more later.
Upon completion of the transaction, Wheaton will become Canada?s eighth largest gold producer, with estimated production of 458,500 gold equivalent ounces (371,000 gold and 6.4 million silver), and with the copper contribution, WRM will lower its cash cost per gold equivalent ounce from US$187 in 2002 to $121 in 2003. Proven and probable reserves will quadruple and free cash flow also will increase, due to the maturity of the assets being acquired. Wheaton's share of the Alumbrera production is expected to average 135,000 ounces of gold and 45,000 tonnes of copper per year; as of June 30, 2002, proven and probable reserves total 7.1 million ounces of gold and 1.9 million tonnes of copper. The Peak gold mine, in Australia, produced 100,800 ounces of gold last year, at cash costs of US$189 per ounce, and has current proven and probable reserves of 731,000 ounces. These new assets put Wheaton much farther along the path toward its goal of becoming a mid-tier gold producer, but in the process of achieving that goal, the company is also becoming the kind of company that is not traditionally our focus. Here?s what I mean by that:
When we first focused on Wheaton River, it was a shell in search of an acquisition, one of which it has made (the Luismin acquisition), two others of which have just been described. When WRM (WHT for the Americans among you) was first recommended, in October of 2001, the price was $0.59 and the fully diluted shares outstanding was just over 60 million. Today, we're up to 262 million fully diluted shares, and that's before the announcement of the financing that will be required to fund the latest acquisitions. For the sake of discussion, let's assume that we're going to see an additional 200 million shares, on a fully diluted basis. That puts Wheaton perilously close to the half-billion share mark, or for the sake of round numbers, that means that to double one's money, at current prices, Wheaton will have to add about C$750 million in market capitalization. I happen to think that we're in a gold market where that will happen, but given Wheaton's transition into what is much more of an institutional than a retail product, I'm going to recommend taking leave of Wheaton. I like the people behind the company, I like what they're doing, but I already regret not having told people to sell the stock north of $2 last May. Given the financing in Wheaton's future and the heavy lifting that is going to be required to produce a double on one's money going forward, my recommendation is to sell WRM and look for more leverage elsewhere in the market. Once the near-term financing is behind it, WRM will re-group and go forward, but not as the more sprightly stock we first encountered 15 months ago. The institutions will love its liquidity, but in a gold market that is adding roughly three-quarters of a billion Canadian dollars on a mere doubling in price, 100% gains are going to be more widely available elsewhere in the marketplace. My advice is to go in search of them. (604) 696-3000, fax 696-3001, wheatonriver.com. |
