The Rude Awakening
Laguna Beach, California
Wednesday, September 6, 2006

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• Gold mining on Wall Street – takeover targets to keep
  your eye on,
  
  
• Buying golden dips at a tenth the cost you'd expect
  to pay,
  
  
• Volunteering on the battlefield and the bedroom, all
  your market data and more...

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Eric Fry, reporting from a park bench near the Laguna Beach
boardwalk...

Orange County, California, which includes the liberal
enclave of Laguna Beach, boasts the most registered
Republicans of any California county...and the fewest
registered Democrats. Here in California's 48th
Congressional district, Republicans outnumber Democrats by
almost two to one.

In Laguna Beach, however, liberal views tend to hold sway.
Laguna was one of only three towns in the 48th district to
cast its majority behind John Kerry. Most Orange County
residents, therefore, might consider Laguna a Petrie dish
of liberal sensibility. We prefer to think of it as a
festival of alternative thought.

Over the Labor Day weekend, a cohort of "alternative
thinkers" lined the coast highway along Main Beach and
waved homemade signs that carried blunt, "alternative"
messages like, "Impeach Bush" and "Rich Man's War, Poor
Man's Blood"...as well as relatively clever "alternative"
messages like, "Hey Dude, Can You Feel a Draft?"

But while the protesters were doing their protesting,
everyone else around them seemed to continue doing whatever
they were doing. Some folks baked themselves under the mid-
day sun, others splashed in the surf. Others perched
themselves on benches and sipped Starbucks Frappuccinos...
and still others strolled arm-in-arm along the boardwalk.
The protesters did not pay much attention to the strolling
lovers and the lovers did not pay much attention to the
protestors.

The band of protesters must have seemed as natural a part
of the Laguna Beach landscape as palm trees and sand and
yoga instructors.

As your editor's gaze – and imagination – wondered from the
protest signs to the strolling couples, and back to the
protest signs, it occurred to him that romance, like war,
is one of those things that does not muddle along very
successfully.

Lovers, like soldiers, either believe in their cause...or
merely fulfill their tour of duty. Honoring a duty is
noble, of course. And it is certainly better than
consorting with the enemy...or going AWOL on shore leave.
But in both love and war, conviction succeeds better than
duty.

Duty, by itself, doesn't win on the battlefield...or in the
bedroom. Honoring a duty is noble, but demanding it is
often the last resort of lost causes.

During a Labor Day email exchange with a French friend,
your California editor explored this seeming similarity
between military service and sexual relations. In both
venues, he reasoned, you'd rather rely on volunteers than
draftees...or mercenaries. And, of course, within the ranks
of volunteers, you'd rather rely upon seasoned soldiers
than green recruits.

Motivation also matters...

"After reading your last remarks," your editor emailed to
his friend, "it occurs to me that military service and
sexual relations are not so different. If you have to rely
upon conscription, you've already lost the 'war.' Much
better to rely upon eager volunteers, don't you think?
 
"Absolutely," the friend replied. "But what is the
proportion of volunteers who truly believe in the cause of
their mission? You forget the notion of 'duty.'"

"Very funny...or maybe not," he answered. "Duty is a noble
attribute, but not a very romantic one. This realization
leaves me somewhat perplexed. Should one prefer romantic
interludes inspired by duty or by 'true belief?' Duty could
probably win a few battles, but true belief wins the
war...I guess I'd like to think that an inspired soldier is
a good soldier."

"...and that a good soldier is an inspired soldier?" the
friend asked.

"Ideally."

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Target Practice
By Eric J. Fry

The price of Kinross Gold (NYSE: KGC) touched an all-time
high yesterday; the price of gold did not. Maybe the price
of Kinross has more to do with trends in the gold-mining
industry than with trends in the gold trading pits.

Miners are buying miners. $100 billion worth of mergers and
acquisitions have swept through the mining industry so far
this year.

This "gold rush" on Wall Street, therefore, may be boosting
share prices more than the rush for gold itself. And
Michael Martin, a mining stock specialist with R. F.
Lafferty in New York, believes the Wall Street gold rush is
far from over.

"The big mining companies can still obtain gold reserves
more cheaply through acquisition than through exploration,"
Martin explains. "As long as that's the case, the takeovers
will continue. But there aren't too many mid-sized
acquisition targets left. Among those that remain, I
consider Yamana Gold (Amex: AUY) to be one of the most
attractive."

"Didn't Yamana and Viceroy Exploration (Amex: XVE) agree to
merge just last week?" your editor inquired.

"That's right," said Martin "And assuming the merger goes
through, Yamana would become a company with more than 7
million ounces of proven and probable reserves, along with
another 12 million ounces of inferred and indicated
reserves. In other words, the post-acquisition Yamana would
possess a reserve base rivaling that of Glamis Gold, the
company Goldcorp just agreed to buy for $8 billion."

"What's the market cap. of Yamana?" we asked.

"About $3 billion," Martin answered, "Or about $3.7
billion, including the merger with Viceroy. So that's less
than half the take-out price of Glamis Gold, roughly
speaking."

"I can see why you'd like it."

"I think there's plenty of upside in this stock, even
without a buyout. The company has a huge amount of
exploration property in Brazil, and with the Viceroy
merger, has a very attractive project in Argentina."

"Hmmm," your editor replied. "Sounds like something a major
gold producer might like to buy."

"I think so," Martin concluded.

Michael Martin's opinions are, obviously, the opinions of
only one man. But as faithful Rude Awakening readers may
recall, this one man offered some very valuable opinions
late last year. Specifically, Martin identified Viceroy as
a probable takeover candidate. The stock has nearly tripled
since then.

"The bull market in gold is still young," Martin declared
in the Rude Awakening edition of December 5, 2005. "I would
be buying every dip on the way up...just like tech stock
investors did throughout the 1990s."

"So what stocks are you picking?" we inquired back then.

"Well I'm concentrating mostly on...prospective takeover
targets," Martin answered. "Most of the large gold
companies are shopping around for acquisitions. So I'm
trying to help my clients take positions in the kinds of
stocks that the big gold companies would want to buy."
"Details, please..."

"...I'll start by mentioning that a good friend of mine, a
resource investor in Canada, mentioned four takeover
candidates to me a few months back. They were Alamos Gold
(Toronto AGI), Viceroy Exploration (Toronto VYE), Bolivar
Gold (Toronto BGC) and Greystar Resources (Toronto GSL)."

Martin then proceeded to detail a compelling investment
case for Tan Range Exploration, which has since become
"Tanzanian Royalty Exploration" (Amex: TRE). As the new
corporate name implies, the company owns royalty interests
in numerous gold mining projects in Tanzania.

"One more thing," we asked Martin last December. Do you own
Tan Range or any of the other stocks you mentioned?"

"Of course I do," he replied, "And do you know why I own
'em?"

"Nope...Enlighten me."

"Because I think they're going higher."

Your editor has no idea whether Yamana, the recent acquirer
of Viceroy, will soon become an "acquiree," but we wouldn't
bet against it.

In tomorrow's column, we'll examine a few more takeover
targets in the gold-mining industry.

[Joel's Note: If indeed the gold bull continues to rampage
on, as many analysts suggest, opportunities will abound to
ride the gold train all the way to the bank. You can, as
Martin suggested last year, "buy every dip on the way up."
Another way to get in on the gold rush is to concentrate
your efforts on potential takeover targets, like those
mentioned above and those that will appear in tomorrow's
column.

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And the Markets...