Goldcorp Looking at Junior Miners Acquisitions, Gold to 1500

Unless the economy completely collapses their stategy makes perfect ssense, since there is blood running in the streets for many of the juniors, and the selling is far overdone as the hedge funds unwind positions. If the stock markets suffer a further significant decline he's about a six months to a year early.

At this time we own no miners (and no long equity positions) and only light trading positions in the metals themselves to which we are slowly adding. We are looking at the miners, but more towards the miners who should be among the first to recover after the equity markets clear.


Goldcorp Well Placed to Exploit Mining-Share Collapse, CEO Says
By Stewart Bailey
Bloomberg
September 10, 2008 09:25 EDT

Sept. 10 (Bloomberg) -- Goldcorp Inc., the world's second- largest gold miner by market value, said it has $1.2 billion in cash and no debt, putting it in a good position to make acquisitions amid a collapse in mining stocks.

The Vancouver-based company will look mainly in Mexico and Canada, where its largest operations are located, Chief Executive Officer Kevin McArthur said yesterday in an interview at the Denver Gold Forum. At the same time, Goldcorp will push ahead, exploring for new sources of ore near its existing mines and developing new deposits, he said.

McArthur believes the forced sale of assets by hedge funds is the cause of bullion's plunge by almost 25 percent since touching a record in March. For smaller miners, the effect of lower metal prices has been exacerbated by the continuing credit crisis, which has constrained their ability to get the loans they need to develop projects. Shares have plummeted.

``When sentiment is bad, and if you believe in the premise that we're in a long-term bull market, this is good time to knock on a few doors and take advantage,'' he said. ``We're looking at another couple of possibilities here and there that look attractive for us.''

`Fire Sale'

McArthur predicts gold prices, depressed by a ``fire sale'' of assets by hedge funds, could double to $1,500 an ounce in 18 months. In making acquisitions, he will face competition from rivals Kinross Gold Corp., Randgold Resources Ltd. and Newmont Mining Corp., all of which believe the crash in mining stocks has created opportunities for buying distressed rivals...

``We saw this liquidity crisis coming, which is why we cashed up,'' McArthur said. ``We're very pleased with the situation right now. We see juniors lacking capital and expertise and what do we have? Capital and expertise. It's a good environment for us to grow our business.''

Acquisitions

McArthur agreed in July to pay C$1.5 billion for Gold Eagle Mines Ltd. to add a deposit of the precious metal near its Red Lake mine in Canada. While acquisitions are likely to be in Canada and Mexico, the company will also consider Brazil, Argentina and Chile, he said.

For targets close to its existing mines, where infrastructure and staff can be shared, the company will consider buying smaller deposits that contain reserves of ``hundreds of thousands of ounces.'' In territories where Goldcorp has no presence, acquisitions would have to ``move the needle'' by adding at least 3 million to 5 million ounces, McArthur said.

Goldcorp's production this year is expected to be 2.3 million to 2.4 million ounces at a cash cost of less than $300 an ounce, the company said in July.

The US Economy is Beyond Simple Repair

Currency trader and banker Chuck Butler publishes a daily foreign exchange newsletter called The Daily Pfennig. We read it via email every morning for which you can subscribe at no charge. Chuck knows his stuff and is a straight shooter.

Today Chuck made an observation that we need to keep in mind.

"The Government's decision to bail out Fannie and Freddie and place them into
conservatorship may shore up the mortgage meltdown in the short term... But to
me, this is just another in the line of things the Fed and Treasury have done in
an attempt to bring calm to the financial markets... (Bear Stearns, mortgage
bill, money supply, low interest rates, and dollar intervention, stimulus
checks, and more!) But, when you step back and look at all this, none of it, and
I mean NONE of it had done anything to alleviate the pressures on rising home
inventories, falling home prices, upside down mortgages, unemployment, the
deteriorization of the financial markets (see the dead man walking list of banks
that are in deep dookie) and that doesn't just mean banks... The major
Brokerages are standing on the street corners with their hands out, begging for
any sovereign wealth fund that might give them a capital infusion."

The basis of the US economy is broken. The bubbles and busts are not incidental, but represent the essence of what it is. Even if Ben and Hank can patch this up by printing money in the short term, it does not fix the problem that the US is not a going concern, does not have a positive cash flow, is relying on credit lines and new debt that cannot be repaid.

The system will stop and fail when we default on the debt or can no longer service it by paying the interest.

Based on our calculations we are already paying the interest with new debt. That is one step from default and insolvency.

The Fed and Treasury are trying to patch the ship of state and keep it afloat. But the problem is that we are in shallow waters grinding through shoals. We need to change course.

SP Weekly Chart Updated - Target to 1180 and Below on Track

The updated chart shows the formation is still working. Depending on where we place any additional necklines the ultimate target can be significantly lower, on the order of 700 or less barring an exogenous event such as war or a more significant monetary inflation.



Original Chart Posted on 6 June 2008

Gross Profits

Bill Gross and Pimco reportedly made a profit of eight billion dollars in one day on the bailout of Fannie Mae and Freddie Mac by speculating on their bonds. This was a wealth transfer from holders of US dollars to Pimco and did nothing on net for the real economy, except to drain valuable resources and mindshare.

At least Soros made his one billion in currency arbitrage by actually opposing a government financial fiction rather than encouraging it when he pounded sterling.

Bill was on CNBC today touting the attractiveness of these instruments for general consumption. Time to book profits and find a new wealth transfer angle to play Bill?