GOLD ETF WILL LIFT THE TIDE FOR EVERYBODY
Hathaway: Excessive financing biggest gold shares value destroyer Tocqueville fund manager John Hathaway criticized the use of excessive financing by both junior and senior mining companies, also urging investors to pay close attention to the gold ounces per share.
Author: Dorothy Kosich
Posted: Friday , 04 May 2007
MIAMI -
Analyst John Hathaway, Senior Managing Director of the Tocqueville Asset Fund, Thursday declared that "the biggest value destroyer for investors in gold shares today is excessive financing.
In a luncheon address to the inaugural Latin America Mining Congress in Miami, Florida, Hathaway urged investors to pay close attention the gold ounces per share, which he called "the most important metric. The industry should start paying attention to that."
While Hathaway admitted that junior mining companies realistically new need cash inflows every 18 months, the industry's propensity to issue more and more new shares and accumulate debt concerns him.
The most important considerations investors should make before putting their money into mining and exploration companies are return on capital and accretion to shareholders, Hathaway advised. ‘What troubles me," he told the audience of gold companies and bankers "is that returns could be so much more" from investments in mining company stocks.
Meanwhile, Hathaway suggested that gold prices are driven much more by what is occurring in capital markets. "Gold doesn't react to the headlines," he declared, "It looks into the future."
In a recently published article that accompanied his talk, Hathaway asserted that there are "unmistakable signs that the metal is moving from weak hands to strong hands. The weak hands are central bank sellers and commodity speculators, ignorant of or indifferent to the metal's long-tern strategic merits as a portfolio diversifier. The strong hands are investment interests who believe that there are risks to the continuation of the status quo for the economy, the financial markets, and the global political situation."
"Adverse outcomes for any or all of these would unleash powerful capital market flows that would drive the metal's price much higher, and thereby protect and preserve capital with appropriate exposure," he added.
Hathaway highly praised the gold ETF, which he called the "biggest story in the gold space." He explained that steady growth in global gold ETFs, "all backed by the physical metal which is taken off the market, is visible evidence of the strength of the global bid for gold."
The gold ETF "has made gold friendly for the first time in history," Hathaway noted. "It's going to lift the tide for everybody" and "bring a lot of people" into investing in precious metals."
He estimated that the gold ETF now absorbs more than 10% of new mine supply. "In time, this instrument will command, in my opinion a market cap equal to or greater than the global gold mining sector of +/-$100 billion." Hathaway noted that ETF investors are primarily interested in the safety that gold can provide, especially during periods of financial adversity.
ETF investors "do not desire or need to undertake the risks embedded in gold mining shares," Hathaway said. The collect market cap of all gold ETFs is $14.2 billion as of March, according to his estimates.
"Its growth to $100 billion will be an important driver of the gold price," he predicted.
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