Denis,
An interesting report which talks about Barrick closing some of its mines.
Do you know which ones? What's does it cost Barrick to extract an oz.
of gold from the mill/mine close to Moneta's property?
Regards
RonS
The Globe and Mail - Douglas Goold
October 18, 1997
If you are one of the thousands of investors in Trimark's Canadian equity or balanced
funds, you are an owner of a good chunk of the world's least popular asset class: gold.
In a stunning reversal for one of Canada's most conservative mutual fund companies,
Trimark bought a whopping $775-million in gold certificates over a three-day period in
July, Vito Maida, vice president of Canadian equities, confirmed in an interview this
week.
That adds up to a 5.1 per cent weighting in the Canadian Fund, 5.1 per cent in the
RSP Equity Fund, 4.9 per cent in the Select Canadian Growth Fund, and 4.4 per cent
in each of the Income Growth and Select Balanced Fund.
That's a lot of bullion, particularly for a mutual fund company whose philosophy calls
for holding a limited number of equities for a very long time.
"Investing in the actual gold commodity is an unusual step for Trimark and for me
personally, " confessed Mr. Maida, who has been managing money for nine years.
Gold is normally purchased as a hedge against inflation, or by those who think demand
will outstrip supply. But Mr. Maida provides a different and very focused rationale for
Trimark's purchase.
"Our view is that the price of gold is selling below the all-in cost of production, and it's
selling below the cash coast of about - in our estimation - a third of the world's gold
mines. When you have that situation, it doesn't last forever. All commodities prices
have to rise to, at least, their cost of production in the long term".
"We don't call commodity prices. It was a real opportunity for us to invest some of our
cash in what we saw as an undervalued asset."
Barrick Gold Corp. announced last month that it was closing half of its 10 mines
because of low gold prices and would take an after-tax charge of $385-million. Royal
Oak Mines Inc. has been forced to close two of its mines for the same reason.
According to the authoritative Gold Fields Mineral Services Ltd. Gold 1997 report,
production costs have been rising worldwide since 1993. Average cash costs were
$262 (US) an ounce in 1996, while average total costs (which includes items such as
depreciation) were $317. Trimark estimated that the all-in cost is now $330.
Trimark's purchase is all the more extraordinary given Mr. Maida's view of gold mining
stocks.
"When we analyze the value of Canadian gold companies, we can not justify the share
prices or the valuation that the market puts on these companies. They are trading
substantially above their net asset value. So we thought that purchasing the gold was a
very conservative way of investing on behalf of our unitholders, in an asset class that
looks undervalued right now."
But doesn't it bother him, as a conservative investor, that gold pays no dividends?
"No," he replied. "Our approach is long-term capital appreciation.
Right now the return on cash is relatively low as well. So it's not a huge opportunity
cost."
Trimark might not have purchased the gold, or even considered it as an option, if the
financial markets weren't so atypical.
"We think we're in unusual markets," Mr. Maida said. "We're having trouble finding
value." While he would prefer to hold equities, "We thought it would be appropriate to
look outside our traditional box."
Mr. Maida said Trimark has no target date or price to sell the gold certificates. But
selling them shouldn't be a problem.
The market is very, very liquid, as shown by the fact that all that gold was purchased in
only three days.
Trimark's decision was not a contrarian one; it was not made because sentiment
toward gold is so negative, a state of affairs that suggests a bottom.
"We try to make rational economic decisions," Mr. Maida said. "It' really our analysis
that drives us."
Trimark bought it's certificates on July 4, 7 and 8, at an average cost of $321. Gold
closed yesterday at $324.30.
Meanwhile, a high profile money manager at another well-known firm hasn't given up
on precious metals. But Altamira Management LTD's Frank Mersch is not interested in
bullion, or the biggest companies such as Barrick Gold Corp. and Placer Done Inc.,
even though he still owns shares in the latter. Instead, he's looking further down the
food chain.
"What I've done is try to identify second-tier, and third-tier smaller cap growth stocks,
and buy a lot of them, rather than own a little bit of Placer and a little bit of Barrick.
"My basic aim is to take my weighting back up to 7 or 8 per cent," in line with the
sector's drastically reduced weighting in the Toronto Stock Exchange 300-stock
composite index.
Mr. Mersch says the gold's have been hit, and will be hit further, by tax-loss selling. So
the stocks are cheap, and low prices have forced management to become more
disciplined and to close more expensive mines. While reluctant to say which stocks he
was buying, he mentioned Golden Star Resources LTD, and Greenstone Resources
Ltd. as the type of companies in which he is interested.
"It's almost like when I was looking at the oils" a few years ago, he explained. "I sort of
ignored the commodity and just focused on the companies themselves to see if there's
growth, and what their balance sheets looked like, and if they will be able to finance it.
I can't guess where the commodity (gold) is - I know it's at the lower end of its trading
range. In essence, I still need good growth companies that trade at low multiples.
"This is a good time to keep a low profile and just pick up some stuff". |
