Saturday 3 August 2013

Once in a Lifetime Opportunity to Buy Barrick Gold? (2)

I received the following comment on my previous posting "Once in a Lifetime Opportunity to Buy Barrick Gold?"

"Very interesting:

When the original article came out (5 July 2013) the share price dropped, but then when you blogged it (15 July 2013) it went up quite a bit.

Was this your own money? Or do you have many followers?"

I thank "Tony", but the comment is really too flattering for me. My blog did receive almost a quarter of a million hits (about 10,000 to 12,000 hits a month), a pretty unbelievable number for a subject that is perceived to be rather boring by most investors, Corporate Governance. It makes me humble, and despite being very occupied with work lately and not earning once cent through this blog (that is the way I want it), I hope to continue writing in the future.

But I don't think (and actually hope) that the readers of this blog are the people who are looking for a quick punt. I try to stress the virtues of long term investing. I agree, the timing of my posting could have been worse, so far it worked out quite nice.

And yes, I did buy Barrick Gold for my own account, but given the size of Barrick Gold, my purchase would have only caused a small ripple in the ocean. I have not sold my holding, not do I intend to do so in the near future, unless the price really rises fast.

Marc Faber has written a lot about miners in general in the past. I assumed he would be interested at the current prices and was thus not disappointed to read in this August 2013 edition of "The Gloom, Boom & Doom Report":

"Relative to all other assets that I follow, gold mining stocks are inexpensive and should be purchased gradually. Some pundits argue that the Fed manipulated the gold prices lower and that the US doesn't have the gold it officially shows. I [Marc Faber] really hope they are right, because if that were the case, gold prices might explode on the upside".

I did speak recently to someone with deep knowledge in mining companies (he worked before for BHP) and trading in commodities. He told me that there is a lot of stress in the market, many companies are stuck with expensive mining assets that they bought in the last years. Prices of commodities have come down recently, indicating growth in China is slowing down substantially.

Also, although many commodities have risen over say the last 10 years, the cost to mine them has risen more, putting pressure on margins. In other words, short-term results of mining companies might be horrendous, with recently acquired assets being (partially) written down.

I have been very critical about Malaysian SPACs in the past (and will firmly continue to do so, unless I have convincing arguments that they actually might work for the minority investors in the long run), but one of the rare positives is that the ones focusing on mining might be able to buy some assets on the cheap from mining companies with stretched balance sheets.

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