Zulauf and Faber: buy GDX (Gold Miners ETF)

In the "Barrons Roundtable 2014" both Marc Faber and Felix Zulauf recommend to buy gold minining companies through "GDX", a gold miners ETF managed by Van Eck, more information can be found here.

The ETF closely tracks the appropriate gold miners index and only has a 0.5% management fee.

Top holdings are Barrick Gold, Goldcorp Inc., Newport Mining, Silver Wheaton, Yamana Gold, Franco-Nevada and Newcrest Mining.

The article on Barrons is behind a pay wall, but the individual stories from Marc Faber can be found here, from Felix Zulauf here.

Wishing all readers a happy and prosperous new year of the horse.

Apple and Barrick Gold

I wrote before about Apple, especially here. I have decided to take profit on the counter (which I bought around USD 450 per share), not because I think the share is expensive, but to hold some more cash. The share price has performed quite well, but is still below its all time high of about USD 700:

For those who are interested in entrepreneurial stories, they might want to consider the movie "Jobs".

Not the best movie ever produced, but quite decent, and it does show how the most valuable company started from its humble beginnings. Will we ever see such a success story in SE Asia? I definitely hope so.


Barrick Gold has not exactly been my most successful share so far, the reason being that gold has performed quite badly this year. Marc Faber mentions in his December newsletter that precious metals and their miners (including Barrick Gold) are some of the rare value plays at the moment.

For me, investing in Barrick is a long-term investment based on the believe that eventually there will be higher inflation due to the actions of the central bankers worldwide. As Marc Faber has indicated, the US dollar has depreciated 95% of its value in about 80 years time (meaning average goods are 20 times more expensive). The US dollar will again depreciate by 95%, but this time it will happen much faster.

From Seeking Alpha, some articles regarding Barrick (the reader might have to sign up for the full articles, which is free of charge):

Barrick Gold: Have We Seen The Bottom?
Barrick Gold - A Contrarian Play Based On Improved Capital Allocation
Has Barrick Gold Deceived Investors?

For those readers who might be shocked about the last link, I would not say this is completely normal practice, but it does happen regularly in the Western markets. All companies do like to polish up their current position and future possibilities, and sometimes they might go to far. Professional investors who buy shares based on information from the company might feel that they have been misled on certain assumptions. Specialized lawyers might want to take up these cases, sometimes for a part of the reward. This type of action is very rare in Asia, I guess the optimal situation would be somewhere in the middle.

Faber: "stocks declining 20% is almost a certainty"

Marc Faber's September issue of "The Gloom, Boom & Doom Report" is again full with pockets of wisdom.

A long story about Macau and the enormous increase of outbound travellers from China. After liberalising gambling in Macau, monthly visitors grew from 40,000 in the mid-1990s to 2.5 million visitors. Even though Stanley Ho lost his gambling monopoly, he has done extremely well due to this 60-fold increase.

Also mentioned is Sheldon Adelson from the Sands company, who saw his company's share price drop from US$ 139 to US$ 1.29; it is now back to about US$ 60, quite a rollercoaster ride.

If readers are optimistic about China's growth story, then Macau should be a beneficiary of that, and thus is Faber moderately positive in the long-term about companies with exposure to Macau's casino's. Faber cautions though about the property bubble (both residential and commercial) in China and its weakening economy.

Faber then moves on to the "other casino", the financial markets, especially related to the Fed, which does not feature high in Faber's opinion, to put it mildly.

Important is the following observation:

"More policymakers and economists are coming to realize that the Fed's unconventional monetary policy is not working. Yet there is also a sense that unwinding is too costly right now and can't be reversed" and ".... the probability that we have embarked on permanent asset purchases by the Fed is very high".

He continues to argue that the Fed has lost control over the bond market, with the 10-year yield rising from about 1.5% to almost 3.0%.

Investors should reduce equity holdings, the US economy will weaken.

Faber still likes industrial commodities and mining companies like:

• Newmont Mining Company: NEM
• Freeport-McMoRan Copper & Gold Inc: FCX
• Barrick Gold Corporation: ABX (featured a few times in this blog)

Emerging markets like Thailand, Indonesia and the Philippines look vulnerable.

Finally, he mentions:

"I would be extremely risk averse for now. I am not concerned about stocks declining 20% or more. (In my opinion, this is almost a certainty.)".

He is concerned about the direction of the Western politics and how badly the geopolitical climate has deteriorated. Xi Jinping, President of China, will not be pushed around by anyone, least of all by Obama.

Losing Faith in Gold?

Long and interesting article on Bloomberg's website by Peter Robison & Ekow Dontoh:

"Losing Faith in Gold From Ghana to Vancouver Proves Rout"

There is an infographic from Bloomberg:

"Damage of Declining Gold Prices Felt Globally"

I recommend to read the whole article, some snippets:


"Gold’s swift fall, including two days in April when it plunged the most since 1980, has ravaged hopes and livelihoods around the world -- from the 1 million miners in Ghana who scour in the dirt, to thousands of executives and geologists at mining exploration firms that are running out of cash in Vancouver. Gone too are jobs for auditors, bankers and analysts in the finance capitals of Toronto and London. Investors who bet big and lost are shifting assets elsewhere and scaling back retirement plans."

"At the September 2011 peak, the market value of the world’s gold mining companies reached $486 billion, more than the gross domestic product of the United Arab Emirates. Since then, they’ve lost $271 billion, including a 71 percent plunge in U.S. shares of AngloGold Ashanti Ltd., a Johannesburg-based producer held by Paulson."

"Seitz went to London in April to raise money for his newest venture, a developer of Kazakhstan gold assets called IRG Exploration & Mining Inc. He met with eight analysts and bankers. Six weeks later, four of them had lost their jobs, he said. “In my professional career, it’s been the toughest couple years of my life,” Seitz said."


However, despite the rather negative tone in the above article, I am not bearish about either gold or the gold miners, about which I have written before. I think that this kind of article is typically written near the bottom of the market, not the top. Small, inefficient mining companies will not be able to survive at the current low prices, but the larger, better funded ones will.

Barrick Gold made a nice run-up from it's lows (around USD 14). I have not yet sold any of my shares in Barrick or any of the other mining companies that I owe.

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.

Once in a Lifetime Opportunity to Buy Barrick Gold?

John Dowdee wrote an article "Once in a Lifetime Opportunity to Buy Barrick Gold!" at the website of The Motley Fool, some excerpts:


The all-in costs for the three largest gold mines are projected from their annual reports as:

• Barrick Gold (NYSE: ABX): $950 to $1025 per ounce
• Newmont Mining (NYSE: NEM): $1100 to $1200 per ounce
• Goldcorp (NYSE: GG): $1000 to $1100 per ounce

Gold is searching for a bottom

These all-in costs are important because this week gold dipped below the $1200 per ounce level for the first time since 2009, which is getting very close to the all-in costs. If the price of bullion does not recover, then some of the higher priced mines will become unprofitable and will be taken offline. This will sharply reduce supply and should cause the price of bullion to rebound. So my Foolish belief is that the price of gold bullion is finally bottoming and, if true, this is excellent news for the mining stocks.

Since last October, the price of gold bullion has cratered over 25%. In the same timeframe, both GG and NEM have declined 36% but ABX has crashed by almost 60%! Why did one of the world’s largest gold miners, with the cheapest all-in costs, collapse so much more than the other, more expensive mining companies? The answer is two words: Pascua-Lama.

The reason behind Barrick’s fall

Pascua-Lama is a gold mine in the Andes Mountains on the border of Chile and Argentina. It sits at over 14,000 feet above sea level on top an estimated 17 million ounces of gold and 635 million ounces of silver, with about 75% of the deposits on the Chilean side. When completed this will be one of the world’s cheapest sources of gold but the construction is about 2 years behind schedule (now projecting a 2016 completion) and is substantially over cost (now projected to be $8.5 billion rather than the original estimate of $3 billion).

However, the most pressing issue is that construction has been stopped by the Chilean government due to some environmental issues (the site is near 3 glaciers). It is not clear when these issues will be resolved but this is an important project for Chile as well as Barrick so I expect that an accommodation will be reached later this year. When this stoppage was announced in April, Barrick fell hard from around $30 per share to under $20 in a few days and has yet to recovery (current price is less than $16 per share).

Compelling metrics

In virtually every value metric, Barrick shines when compared with its peers. Barrick’s forward Price-to-Earnings (P/E) ratio is extremely low at 4.9 and is significantly lower than Newmont (9.3) and Goldcorp (12.4). In terms of price-to-book, Barrick comes in at a compelling 0.7 compared with 1.1 for Newmont and 0.9 for Goldcorp. Perhaps one of the best metrics is the dividend yield. Barrick is now paying over 5% which is higher than Newmont and much higher the Goldcorp. So Barrick will pay you to wait for improvement in the Pascua-Lama situation.

Based on the above analysis, I believe the recent decline of Barrick was overdone. Pascua-Lama is important to Barrick’s future, but it is not a make-or-break proposition. Even without Pascua-Lama, Barrick owns over 26 mines that produced over 7 million ounces of gold last year. Barrick also has over 120 million ounces of gold and about a billion ounces of silver in reserves.

Foolish bottom line

When the Pascua-Lama issue is resolved, Barrick should rocket ahead, but until then, the company is one of Wall Street’s most unloved stocks! Thus, based on the old Wall Street adage, it may be time for Foolish investors to back up the truck and load up with this gold stock. If you can handle the volatility, then I believe that long-term investments in Barrick will be well rewarded.


I wrote before about gold miners. I quite like mining companies at the current price, and have started to accumulate a few, including Barrick Gold. However, investors should be ready to stomach potential losses, sentiment is terrible at the moment and the stocks of mining companies can easily fall further. If that happens I will buy some more, I don't think a whole industry can be wiped out. Normally, if shares of companies in a beaten down industry do recover, it will be the blue chips who are leading the charge.

A more negative story, to balance things out, from the same The Motley Fool: "Can Gold Miners Drop Even Further?"

Sarfaraz Khan writes:


"Analysts have also pointed out that some of the leading gold miners are going to write down the value of their assets in the coming quarters. While some believe that the sector has hit rock bottom, I think that it can go down even further."


Note: this is not a recommendation to buy or sell shares. Readers should do their own homework and decide themselves.