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Goldcorp: Feeling Glamis All Over?
by Edgar J. Steele

September 5,
2006

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"It has been, indeed, a trying hour for the Republic; but I see in the
future a crisis approaching that unnerves me and causes me to tremble for the
safety of my country. As a result of the war, corporations have been enthroned
and an era of corruption in high places will follow, and the money power of the
country will endeavor to prolong its reign by working upon the prejudices of the
people until wealth is aggregated in a few hands and the Republic is
destroyed."
--- Abraham Lincoln, in reply to a letter from a
friend in Illinois, as the War of Northern Aggression wound down

"Every morning, I have a 5-mile run and a cold shower, then I feel rosy
all over."
(From the back of the bus) "Tell us more about
Rosy."
--- Tired, old joke

These are wild times for metal stocks, as evidenced by the recent flurry of
hostile takeover bids and friendly mergers and consolidations.  All this
indicates a belief by some, at least, that the stocks of takeover targets are
undervalued.  Some allege that this undervaluation results from the illegal
rigging of world metals market prices by some of those same companies attempting
to acquire others, particularly Barrick Gold Corporation's pending hostile
takeover bid for Novagold, now that Barrick has bagged Novagold's own former
hostile-takeover target, Pioneer Metals.  More on this in a moment.

Technical stock analysts generally claim that price floors have been tested
and reconsolidated and that both gold and silver now are due for big upward
spikes.  A few predict imminent downward metal price moves.
Regardless, I know which way the dollar will be going (down, because that is the only direction it
can go), and that is all that matters to me in dictating my long-term
precious metals position.

Silver spiked up this past week.  Maybe a trend.  Maybe not.
Those who bought along with me have all their positions in the black, so we
quite simply don't care.  We know what the future holds.
What's more, we hold at least half our wealth in the form of metal itself, not
paper (including Exchange-Traded Funds like GLD and SLV, incidentally), so we
can afford to just sit on our assets.  Our only question is when to move
our paper investments to increasingly-safer forms, then into metal, as
well.  I think there still is a strong updraft in metal prices coming and
would like to capitalize on it to some degree with the leverage that paper
affords.

Capitalism or Fascism?  Gee, I Can't Tell the
Difference!

Mergers and acquisitions:  It's just business as usual in what passes
for "Capitalism" these days.  Corporate fascism, more like it, given the
clearly-existing linkages between government, market makers and market
participants.  For example, the position of US Treasurer effectively has
become a sinecure for the Goldman Sachs investment banking firm.  Current
Treasury Secretary, Henry Paulson, was Goldman Sachs' most recent CEO.
Clinton's Treasury Secretary, Robert Rubin, also once headed up Goldman
Sachs.  What are the odds?  About the same as the room-temperature-IQ
son of George Bush ascending to the Presidency on his own merits, I'd say.

Ever since my days on Treasury staff for a major American corporation, I have
known just how irrelevant are stockholders and how corporate officers always
realign their companies to ensure their own survival and prosperity at the
expense of stockholders, beginning with "stacking" the Board of Directors.
With a solid background in Finance (BA) and Accounting (MBA, Cal Berkeley), not
to mention a law degree from UCLA, I know all the little tricks, such as
shuffling foreign tax credits to avoid paying US taxes altogether or moving debt
off a balance sheet via major lease deals or interlocking corporate book cooking
sales or burying costs and revenues in reserves (euphemistically called
"capitalizing" them) so that they are available in the future to massage
reported income streams (which always differ radically from taxable revenues and
costs) or directly plundering the worth of a company by granting officer stock
options that are buried in financial statement notes and amount to a direct
transfer of wealth from shareholder wallets to those of corporate executives and
directors (well, how did you think they managed to stack the boards in the first
place?).

My knowledge, coupled with how I have seen American business increasingly
grow into a form of corporate fascism that disregards shareholders, first, then
citizens of whole countries, second, as companies conduct business in the self
interest of their own executives (witness Enron or, better yet, Dick Cheney's
Halliburton), has led me seriously to reevaluate my belief in the viability of
Capitalism in any society for longer than a very brief period of time.

Employees, of course, always have been irrelevant and disposable to
capitalism in any form, which is why collectivist labor unions got a toehold in
the first place, then a stranglehold, in American business - a stranglehold that
led directly to today's outsourcing and the upcoming impoverishment of the
American working class in yet another demonstration of how collectivism of
any sort always is a really bad idea.

Capitalism now seems to me always destined to morph into the
dictatorial-collectivist sort of monopolistic, fascistic greed, oppression and
exploitation of the common man that is all too prevalent in the world today, as
the line between business and government increasingly blurs.  Separation of
church and state?  What we really need is separation of Board Room and
State!

Mind you, there is no danger of my philosophically lurching toward that other
form of collectivism, most easily recognized in the forms of socialism or
communism.  As hinted above, I see them being just as bad as what I now see
developing in the world today, perhaps worse, if we judge them by what took
place in Russia and China last century.

Of course, we haven't seen the end result of what is happening today.
Things yet could end up even uglier than ever before seen, given all the loose
talk by lunatics like Rumsfeld and Cheney about pre-emptive war, tactical usage
of nuclear weapons, disease pandemics and, of course, the eradication of liberty
in order to preserve it, Orwell-style.

Then there is the increasing evidence of governmental false flag operations,
such as that which 9/11 increasingly appears to have been, whereby governments
knowingly murder swaths of their own citizenry in order to stampede the rest
toward a foregone conclusion reached in private, smoke-filled rooms.

End of socio-political sermon for today.

Goldcorp: Too Successful for Its Own Good

Vancouver-based Goldcorp, Inc. (GG) just
has announced its agreement to acquire Glamis Gold, Ltd. (GLM) in a deal
that will result in Goldcorp becoming the world's third largest gold
producer.  The total value of all outstanding shares of the combined
venture, to continue under the name Goldcorp, will exceed $20 billion.  I'm
not happy about this merger, nor is the rest of the market, evidenced by the
fact that GG's stock gapped down $3 the morning after the announcement.
Glamis, of course, was up, reflective of the unconscionable 1/3 premium being
offered.  This is the sort of premium offered by competitors in hostile
takeover deals, not friendly mergers.  Something stinks here, folks, and
it's coming from the Goldcorp Board Room.

Once again, Goldcorp's officers have shafted their own stockholders, in my
opinion.  The last time was via the recent outlandish stock options they
granted themselves and board members.  Previously, I found a listing of
those options by director and executive on line, leading me to demand an
explanation of Goldcorp's public relations director (whose response to me was at
once both arrogant and inadequate).  Oddly enough, I no longer seem to be
able to find such a listing anywhere on Goldcorp's web site.

Knowing full well the terms of the impending-but-still-secret Glamis deal, in
the works since June, on August 25 Goldcorp's officers had the unmitigated gall
to tell
shareholders to reject the August 16 "minitender offer" by TRC Capital for
3,000,000 shares of Goldcorp (less than 1% of Goldcorp's total outstanding
shares).

Minitenders are made for several reasons, the most important being the
ability to acquire a small (less than 5%) but significant stake in a company
without the necessary government agency filings attendant to larger
acquisitions.  Minitenders also "test the water" by seeing how a proposed
price flies with the target's shareholders and executives.  Minitenders
often (but not always) precede a takeover bid.  Finally, minitender offers
simply are ways for some unscrupulous companies to acquire blocks of stock from
unwary investors below current market prices.

TRC regularly goes around making this sort of tender offer to the
shareholders of all sorts of companies, including Coca Cola and Halliburton
recently, so appears to be one of those opportunists comprising the very last
category noted.  Even so, for Goldcorp's management to say "Don't sell
your shares to TRC (for about $30 each)," knowing full well that they were
about to announce a deal that would result in the lowering of Goldcorp's stock
price to about $27 per share because of an outrageously excessive premium being
offered for no apparent reason is ... well ... actionable, if not
criminal.  Keeping its mouth shut would have been one thing.
Virtually no shareholder would have taken TRC's offer anyway, unless they
somehow knew that Goldcorp was about to shaft them even worse.

However, in my professional legal opinion, to actively discourage
stockholders, to whom Goldcorp officers and directors owe a high fiduciary duty,
from selling their stock for a price substantially higher than those same
officers and directors know they are about to create, goes beyond mere breach of
fiduciary duty and verges well into the territory of fraud, both civil and
criminal in nature.

After this consolidation with Glamis, Ian Telfer, Goldcorp's current
president, moves up to Chairman and Glamis' president seems to be taking over
the executive reins.  That may be good, but then you have to wonder just
who is taking over whom, particularly in light of the premium offered to Glamis.

I've been in the midst of hostile takeovers before.  I understand the
mentality that festers, then runs rampant through an industry once the dominoes
start falling.  I think that Goldcorp's executives and directors have been
running scared.

Round and Round We Go...

Here's what I speculate is going through the minds of Goldcorp's board
members:  Because of its success, both operationally and due to blind, dumb
luck in market timing, Goldcorp is the single most attractive takeover candidate
in the world.  GG's total market cap is small enough to be swallowed by at
least 10 or 15 other gold companies (yes, most of them smaller than
Goldcorp).  Goldcorp's strong balance sheet, high reserves, low extraction
costs and nonexistent hedging (GG has stopped stockpiling, which is a form of
"reverse hedging") all make acquisition of Goldcorp a no brainer for anybody who
can float the financing to pull it off.  An acquisition of Goldcorp
instantly cleans up anybody else's financial statements and strengthens their
own stock.

Once Barrick and Novagold started the hostile-takeover festivities, I'm
positive that Goldcorp got very nervous and examined ways to avoid a hostile
takeover of itself, as attempted by Glamis last year.  One way is to get
too big to swallow, by swallowing a major competitor yourself.  Another is
to weaken your balance sheet and/or operating cost picture.  Goldcorp gets
bigger by acquiring Glamis, with the added short-term bonus of significantly
diluting its own stock by paying such an outrageous premium (this impediment
disappears once the consolidation takes place).  Oddly enough, however,
Goldcorp proposes this acquisition, not by issuing debt, which would make it
even less attractive as a takeover target, but by issuing stock, in a move that
hurts only existing Goldcorp shareholders.

Envision the Crimson Permanent Assurance Company, sailing the financial high
seas at the outset of the Monty Python movie, The Meaning of Life.

Corporations are run by people - usually men.  And men will be men,
after all, albeit men in Brooks Brothers suits.  Fragile male egos get
bruised in takeover attempts.  Unsuccessful hostile takeover targets often
turn around and go on the attack, even though the former attacker might not be
the best target, strictly from an acquisition standpoint.  But, then, men
will be men.  It's a guy thing.  Picture how bar fights begin ... and
end.  That's why Barrick turned around and now is wasting its time on
Novagold when it should have pursued Goldcorp, instead.  That also is why
Goldcorp simply must have Glamis, a company that made its own hostile takeover
bid for Goldcorp last year.

Now picture victim turned victor, vanquishing its foe.  Or, as
Monty Python showed us:  walking the corporate plank.  And you thought
finance and accounting was dull!

Too Many Lawyers, Not Enough Good Ones

Speaking of walking the plank, Goldcorp's Telfer and crew should be sued by
someone willing to finance a shareholder derivative suit for breach of fiduciary
duty in (1) engineering the recent massive stock options they gave themselves
and (2) giving away the store with the Glamis offer when it is Glamis who
should be paying the premium to Goldcorp and, (3) particularly, for telling
us to refuse TRC's offer of $30 per share when they knew full well that they
were about to drive Goldcorp's stock price to a far lower level in just a matter
of days.

There are other ways for companies to protect themselves from
takeovers:  poison pills and the like, but they often get invalidated by
the courts.  Growth via debt leverage, making yourself simultaneously too
big to swallow and too undercapitalized to be an attractive breakup candidate,
is the best way:  You issue debt and use the proceeds to buy the stock of a
major competitor outright.  The Goldcorp/Glamis merger merely creates a
larger entity since the loss with which Goldcorp's shareholders get tagged goes
to the Glamis shareholders as a gain.  Total market cap for the combination
stays the same, as does the combined debt and hedging structures.  Here's
the problem:  After Glamis, Goldcorp still is the most attractive takeover
candidate around.  Only the field of potential hostile suitors has been
narrowed and Barrick still is the most ominous predator around.

In fact, Goldcorp's lower share price makes it an even more attractive
takeover target, particularly if a hostile tender offer is enough to make the
Glamis deal go sideways.  Even if Glamis goes through, an acquisition of
Goldcorp by a company the size of Barrick or Newmont, the number-two gold
company in terms of total market capitalization, makes a lot of sense.

Regardless, the market historically swings up once everybody returns from
their August vacation.  Now is the time for a predator to make its move.
The action has only just begun, I suspect.

Telfer mentioned spinning off the silver end of GG's business.  That's
the biggest potential growth area of the precious metals field, of course, and
getting rid of its Wheaton silver operation, with which Goldcorp fortuitously
merged last year just prior to silver's big move upwards in order to dodge
Glamis, would make Goldcorp less attractive.  Any bets on it going to an
allied group, maybe directly involving Telfer, now that he will be just
Chairman, for a sweetheart price, thereby further insulting GG's stock
price?

Oh, you're probably right - I'm just too suspicious.  But, it is
suspicion born of experience, believe me, and I already have taken the measure
of those currently running Goldcorp and found them wanting.

Telfer also joked about issuing a takeover bid for a larger gold
company.  That is just bluster.  Tell me he isn't running
scared.  Picture Telfer walking that plank ... please.

The Music Begins...

As mentioned above, it was just last month that Toronto-based Barrick
Gold Corp. rescued Pioneer Metals (PSM-TSX)from a hostile takeover bid
made by Novagold Resources, Inc. during the previous month, in which
Novagold offered CDN $.57 per share for Pioneer.  Barrick and Pioneer
agreed to CDN $1.00 per share, which was about a third more than that for which
Pioneer was trading just prior to Novagold's June bid.  In financial
circles, Barrick thus became what is called a "white knight" for rescuing
Pioneer from a lowball takeover bid.

Some may recall that it was just one month prior to Novagold's
unsuccessful bid for Pioneer, in May 2006, that the prices of metals and mining
stocks underwent a drastic meltdown, from which they have yet to recover.
The traditional end-of-summer, low-point window is closing fast.  Gold
likely is about to move higher.  Certainly, all the activity suggests that
the major players believe so.

Simultaneous with rescuing Pioneer from Novagold, Barrick then
made its own hostile takeover bid for Novagold itself, which since has
adopted "poison pill" defenses, effectively designed to kill Novagold in
the event of a successful takeover bid by Barrick.  Novagold claims Barrick has
misused confidential financial information gained during a joint venture
involving both companies.  Lawsuits all around, of course.  Novagold
also has embarked upon a public-relations campaign, including the announcement
of significant increases in the estimates of its in-ground reserves
(coincidental, of course, and surely not designed to support Novagold's
contention that its stock is worth more than that being offered by
Barrick).

In supporting Novagold's defense against
Barrick's takeover bid, the Gold Anti-Trust Action Committee (GATA) alleges that Barrick illegally has participated in rigging
the market price of gold via "short sales" (sales of future production at
current prices) far in excess of what Barrick possibly ever could deliver,
designed to keep gold's price artificially low.  This, of course,
facilitates a cheap takeover like that which Barrick now is attempting of
Novagold.

GATA's estimable chairman, Bill
Murphy, stated:
"Barrick's hedge book is mega-toxic and so the
company is desperate for the unhedged gold in the ground at NovaGold, with which
Barrick would extricate itself from a nightmare.  Taking over NovaGold will
help Barrick immensely.  This cannot be allowed to happen UNLESS Barrick
has to pay so much that it impairs their credit situation..."  Indeed,
already Standard and Poor's (a credit rating service) has downgraded Barrick's
debt ratings, due simply to the existing takeover bid, which would push
Barrick's debt level up substantially, while affording little increase in its
cash flow.

There are other industry mergers shaping up, too.

Plan B?

I think there is a very strong likelihood of Barrick's bid for
NovaGold failing.  When that happens (and I'll bet this already is lined
up, with all the papers drafted, just awaiting dates and signatures in Barrick's
board room), Goldcorp becomes the next logical target for Barrick.  In
fact, but for the infighting and bruised egos involved in the Pioneer scuffle,
Barrick likely would have gone after Goldcorp in the first place.

Face it:  Barrick has been a major tool used by our
government in manipulating the price of gold.  You think they will not see
that Barrick is rewarded?  Barrick must somehow reduce its exposure to its
outlandish short forward sales.  Goldcorp does that job for Barrick better
than anybody else.  Do the math.

Whither the Goldcorp
Shareholder?

So - where are we?  We already have taken our lumps for
this surprise Glamis deal, so we might as well just hold on for now.  We
can only hope it falls apart, somehow, thereby returning the 10% of our
stock value that Telfer magnanimously handed over to Glamis.

Let's get real clear about the dynamics at work here:
Goldcorp is the single best gold company in the world.  Any acquisition
by Goldcorp, even without paying any premiums, will weaken it and cause
its stock price to drop.  Any acquisition of Goldcorp, however, will
strengthen the acquiring company and cause Goldcorp's stock price to rise, due
to the premium required.

Now I'm hoping for Barrick to drop pursuit of Novagold and
immediately turn on Goldcorp, creating a situation that might cause Glamis to
want to go sideways, despite the premium now on the table.  If not, then
Barrick should swallow both at once.  Barrick can do it and end up looking
a whole lot better than it does right now due to its current massive hedging
position.  Barrick would, of course, be fought tooth and nail and would
have to offer a hefty premium.  If Glamis dropped out, double that
premium.  I, for one, gladly will tender my Goldcorp shares for that
premium and put the money elsewhere, as my patience with Goldcorp's management
finally has run out after a very successful four-year run.

If we get out of Goldcorp whole - no ... when we get out
of Goldcorp - what do we do with our money?  Maybe a few junior flyers, but
the bulk of mine goes into the GDX fund, with perhaps a third into the GLD
and/or SLV ETFs.  We already have our long-term silver positions
established, of course.  The dollar is getting just too, too shaky for my
taste.

That, however, is another
story.

My name is Edgar J. Steele.  Thanks for listening.
Please visit my web site, http://www.conspiracypenpal.com/,
for other messages just like this one.

-ed

Copyright ©2006, Edgar J. Steele

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