No, I'm not shorting Kinross. In fact, I'm merely waiting on the
sidelines for a good opportunity to jump back in. I last bought it
at 5-3/4, 2 years ago, only to sell it when it reached 11 3 months later. It was the best investment, percentage wise, that I ever made!
But I saw that Gold was not going to stay above $400 for long. It was
simply too small a market, and too easily influenced. And it did have
many powerful "enemies". Major European Central banks have enough reserves to satisfy world demand for more than 5 years, and if they decide to even sell 10% of that to clean up their books for the EU, that would mean a further decline that would seriously test the $280
support level. Furthermore, Gold, unlike other natural ressources, has
a very high recycling rate, due to its value. The overall supply does not diminish with consumption; it increases every year. Furthermore, with inflation not likely to return in the short term in western economies, and under control in major emerging markets such as India, China, Brazil, Argentina and Mexico, Gold beginning to lose its appeal. There's also pressure on the World Bank and the IMF to liquidate partially or entirely their reserves, which for the IMF alone totals more than 3000 tons, or 1 year of world supply, to help third world nations pay off their external debts.
Amid all this negativity, there is, however, a potentially positive factor: the possibility of a massive correction in equties this fall. That, however, is a deeper and more complexe subject, that I will not discuss here.
The facts contained in my analysis is, at least to my knowledge,
fairly accurate. If you find any errors or discrepancies in them, or in my interpretation of them, please feel free to post any corrections. I would most gladly welcome them. I understand that it is tempting to buy a stock just because it has been beaten up so badly, but it is much better to take a deep look at the fundamentals before making any investments. The major producers take all of this into account, and I doubt that anyone of them is completely interested in Kinross. Half of Kinross's mines, including its US and Zimbabwe operations, are marginally profitable even above $400. They also have low levels of reserves, and many operating difficulties due to natural causes(i.e. the delay at Delamar last year because of a snow storm).
The majors have sunk quite a lot into acquisitions in the past year,
such as Barrick's acquisition of Arequipa, and Placer Dome's takeover of Highland Gold. There's no doubt that they have the muscle for more,
but they favor targets that are poorly managed, but have excellent potential for growing reserves, such as Lac Minerals, which was the last major senior producer to be taken over. Barrick sold Macassa to
Kinross 2 years ago, and I doubt that they want to buy it back.
They could, however, be interested in Hoyle Pond, by far Kinross's most valuable asset. But they know that buyers must be found for the high cost mines as well. Let's assume that, given the current climate,
they're willing to pay $200 million for Hoyle Pond, plus an aggregate amount of $350 million of Kinross's remaining assets, cash included.
That barely adds up to $5.50 a share. The majors know that they're in no hurry to snatch up any assets, and will patiently wait until the price is right. They might even fight a war of attrition, forward selling their smaller, high-cost rivals into bankrupcy before making acquisitions at fire-sale prices. In any case, don't put too much hope on an impending takeover of Kinross, since this is a buyer's market! In the long run, Kinross might be worth holding at current prices, but it is advisable in my opinion to stay away from it just for now. If and when I do make a purchase of the stock, it will be below $4.50. My recommenadtion is that you sell Kinross and take a look at Cameco. All of its production has been hedged at $426/ounce, and its average cash cost is below $200. Uranium prices are due for an explosion this year, for various reasons(see FP 500 issue, recommendation by TD securities). If you're interested in this one,
there's an SI discussion group on it, and the company has a web page at www.cameco.com. Good luck to you too! Take your profits and put them elsewhere(or at least put a stop-loss)! Keep in mind that
selling is the hardest thing to do in any investment!
Regards,
Ming |
