Risk -- Gabriel and (the former) Southern Era
I guess we're dealing with a comparison of investor appetite for risk, and the risk itself. It seems that by late last year, appetite for risk in mining stocks was large, and now has swung in the other direction. Many companies with similar prospects are trading at much lower values. Newmont no doubt has impressive resources for analyzing and comparing value and risk in different companies, and the fact that Gabriel was at the top of their list for investment certainly indicates that the pendulum swung too far in the risk-adverse direction for Gabriel.
One company I follow is the former Southern Era (recently split into Southern Platinum and the much smaller mkt cap SouthernEra Diamonds). Its main source of value is the Messina platinum mine, and I read Southern Platinum could become the number five platinum company in the world in the later stages of its mine expansion. Although the future of platinum is extremely bright, its greatest risk being that further price increases will force people into substitutes, Southern Era / Southern Platinum has been crushed recently in a series of abrupt high volume (institutional) sell-offs, punctuated by low volume trading, just as occurred for Gabriel. Part of it is the high rand exchange rate and a market sense of increasing greed on the part of the SA government in milking the platinum and other mining industries. At the same time, one has to wonder whether it is justified that the company, with an existing mine and significant cash flow, has effectively fallen to about 1/3 of its trading value in about a year, when there have been no surprises in the prospects of its platinum mine, and in fact their new automated equipment appears to give them an advantage over competitors. What I suspect is that some fund managers have decided, as with Gabriel, that holding what are considered geo-politically risky stocks is not in vogue at the moment and a risk to their jobs because they've been in a downtrend lately. They've dumped the stocks at whatever they could get for them for the sake of short term window dressing of their portfolios, a potential opportunity for others to pick up these stocks at a much greater value relative to the real risk.
Out of interest, has anyone noticed that since Southern Era split, its platinum version, Southern Platinum is not trading on the London AIM exchange? I have to wonder whether people who were trading the stock on AIM have decided to dump Southern Platinum because they cannot follow it to their satisfaction when it is trading on the TSX. |
