re: South African Golds........................................
Croesus re:
{"Both DROOY and HMY are losing money at present. How much per month or per year will they have to borrow and/or dilute to finance their operations until they get a favorable move in gold in terms of the Rand? Will that be significant to their stock price?"}
...is and will be significant to their stockprice and is factored into the stockprice today. Those with the greatest risk - offer the potential for the greatest rewards.
{"RANGY and GFI are in the black, which I generally prefer, although that may create less leverage..."}
...exactly. Leverage comes from that risk. Each Trader must decide what ratio of risk:reward they wish to take on. Basket them...take the most financially solid, the most leveraged, add a take out candidate & an exploration play etc...again; it's an ala carte menu for the risk:reward appetite of each individual. We are approaching valuation levels in some of these companies similar to that at $250 Gold. If you intelligently average into a position - buying into weakness, you'll own them cheaply enough to hold them.
The South African idea is very simple.
- it is a contrarian play with great leverage to risk.
- that leverage comes from anticipating the move and not reacting to it.
- the base of this idea is that the Rand is a Commodity Currency that has diverged on an extreme basis from the US Dollar.
South African Monetary Policy created a uber-strong Rand to fight the inflation of $50 Oil.
The Monetary Policy of a Commodity Currency that is destroying it's own underlying Commodity Base will not & can not continue.
There is begining to be tremendous political AND economic pressure within South Africa to change it's monetary policy.
It will either change, or implode on itself.
- that's the bet.
The leverage is in anticipating that change in monetary policy... if the USD countertrend rallies - that's icing on the cake & not necessary to make the trade profitable... just more leverage.
You can anticipate & lead, or you can react & follow...leading comes with higher risk, but higher rewards....again, an individual choice as to when you act & what level of risk to reward you wish to shoulder.
At the bottom of this post I've linked a Chart of the Rand & US Dollar (having problems posting the link ?)... slide the time bar and you can track the historic divergence & convergence of the Rand & USD and how the South African Shareprices have tracked those moves. We've reached an extreme divergence... against a history of convergence... with the present 200 day timeframe of this chart already showing the initial tic moves towards potential convergence once again...when, not if.
I am not concerned with waiting for the Charts & the Technicals
to show me what has already happened and that a convergence is underway...that takes away too much of the reward leverage.
The stocks will move before the Technicals & Chart's endorse the move.
You will continue to see longtime savy Gold Money rotate back into the South African's, along with insider buying... already happening.
Some would rather speculate on future exploration, financing, mine construction and production at a future date with unknown gold prices... to each their own; I realize the opportunity in that as well.
Exploration and developmental companies have their place...they have their own risks and their own rewards. I'm not making an arguement of the South African's vs. the No American Junior's...there should be a place for both of them along with the Major's in a well balanced Gold/PM portfolio.
I just can't ignore DROOY's 900,000 oz of current production priced $30+ per oz below the spot market & tremendous reserves presently valued at $24 an oz....all due to a currency divergence that history supports will converge at some time; but more importantly is the product of Monetary Policy that must and will change at some time...and has the "floor" of assets that can be spun off that are nearly equal to the present market cap valuation of the entire existing company.
Is there a guarantee that South African Monetary Policy will change, or that the Rand:US Dollar divergence will converge, or that DROOY will spin off assets etc ?
No.... but, if you wanted guarantee's - you wouldn't be in Goldstocks, or reading this - now would you ?
You will see continued internal political pressure to change monetary policy in South Africa... already happening.
You will continue to see these South African Companies manage this environment - cutting costs further, putting marginal mines on maintenance, or spinning off assets/tracking stocks... it's already starting to happen. Obviously management matters... factor that in as well.
It's early...it's lonely...it's risky...it's outside the box.
It's;
$lider
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