China Looking to Africa for Gold Riches

In 2010, Barrick Gold (NYSE: ABX) floated its African subsidiary African Barrick (NASDAQPTH: ABGLY.PK) on the London Stock Exchange while retaining a 74 percent majority interest in the company. African Barrick is Tanzania's biggest gold producer with 17 million ounces in gold reserves. Despite this, African Barrick's stock has performed badly since listing – down about 30 percent.

The poor performance is due to poor production numbers – only about 700,000 ounces this year versus the expected nearly 1 million ounces – thanks to being forced to mine low-grade ores. African Barrick also has had to constantly battle power disruptions in Tanzania which have also pushed up costs (forced usage of diesel generation for power). The company struggling to keep costs within its $790-$860 per ounce range, well above the parent company's target of $550-$575 an ounce. Costs were only in the $530 per ounce range in 2009.

The decision to possibly unload poorly performing African Barrick should come as no shock to investors. New Barrick Gold CEO, Jamie Sokalsky, is in a tightening mode and a few weeks ago the company signaled that it was reining in its aggressive expansion plans, a review of vast portfolio of assets, and announced a renewed focus on disciplined spending. Mr. Sokalsky said during his first earnings call “Assets that do not generate target returns or significantly impact our ability to generate long-term free cash flow will be either deferred, shelved or divested.”

So, with the help of investment bank UBS, the parent company is looking to unload its stake in African Barrick as quickly as possible. The good news for Barrick Gold is that there seems to be no shortage of suitors for the firm.

Foremost among the suitors are the Chinese, who are hungry for more international gold assets. It is believed a Chinese buyer will substitute African Barrick's high-priced expatriate workforce with its own cheaper workforce. State-owned China National Gold is rumored to be at the front of the line and in preliminary talks currently with Barrick Gold about its African subsidiary. Another Chinese state-backed mining company and major gold producer, Zijin Mining Group, has also expressed an interest in African Barrick. But it is believed that its offer was too much of a low-ball offer and is not being seriously considered by Barrick Gold.

However, Zijin's interest in African Barrick has now sparked interest in the company from other gold mining companies. These companies are said to include AngloGold Ashanti ADR (NYSE: AU), Gold Fields ADR (NYSE: GFI) and Randgold Resources ADR (Nasdaq: GOLD). Gold Fields' main focus is on the deep mine shafts in South Africa's troubled gold industry and is interested is diversifying further into Africa on top of its existing open pit gold mining operations in Ghana.

Perhaps the better fit with African Barrick would be either Randgold Resources or AngloGold Ashanti. Both firms have been named as possible buyers of African Barrick in the past because they do mine geologically similar projects in greenstone belts in Africa. Randgold Resources, which has had a track record of building and running gold mines very successfully, has its operations mainly in the African nation of Mali. AngloGold Ashanti is a gold producer with operations in 10 countries including in South Africa, Namibia, Ghana, Guinea, Democratic Republic of the Congo, Mali and Tanzania.

The main attraction for all of these miners with African Barrick has to be its latest project in Tanzania, the Nyanzaga project. It is believed there are approximately 4.2 million ounces of gold located, in the Lake Victoria region, in higher-grade ores. It is this project which may turn African Barrick back into a growth story again. At least that is what the eventual buyer of the company must be hoping.

This article originally appeared on the Motley Fool Blog Network. Please make sure to read all my articles for the Motley Fool at http://blog.fool.com/tdalmoe/.

China Is the Key to Apple's Future Growth

Any investor that hasn't been under a rock in the last few weeks is aware that Apple (Nasdaq: AAPL) once again topped Wall Street forecasts for its performance in the second quarter of 2012.


Behind the latest surge in Apple's results was the news that the company had sold 35 million iPhones during the quarter, ahead of most estimates. Sales of the iPad came in ahead of estimates also at 11.8 million, 150 percent ahead of the year ago period.

Apple itself stated that the surge in iPhone sales was due largely to strong performances in international markets. And there is the key for Apple investors. Apple's future fortunes lie in overseas markets and most importantly in China.

Consider this bit of information which came out of the recent Apple earnings conference call. Sales in greater China during so far this fiscal year came to $12.4 billion, compared to sales of $13.3 billion for the whole of the 2011 fiscal year! Sales of the iPhone in the second quarter were more than 5 times higher than during the same period last year.

And it's not just the iPhone and iPad which are flying off store shelves in China. Even Mac computer sales were up more than 60 percent in the country, well above the 6 percent growth rate for the personal computer market there and the 7 percent growth for Mac worldwide. The “cult” of Apple seems to be growing there, amazing even CEO Tim Cook who said on the conference call “It is mind-boggling that we could do this well [in China].”

China already is the second biggest market for Apple in terms of sales, trailing only the United States. The company's second quarter China sales came in $7.9 billion, accounting for a chunky 20 percent of Apple's total second quarter sales of $39.2 billion. These sales in the second quarter of 2012 pushed the Asia Pacific region to surpass the European region for the first ever in terms of revenues to Apple.

The good news for its investors is that Apple has barely scratched the surface in China. The number of point of sales in China is only 11,000 for iPhones, 2,500 for iPads and just 1,800 for Mac. Consider also that its stores in China are among Apple's most heavily trafficked in the world. No wonder that Tim Cook thinks that Apple's strong results in the country are just the tip of the iceberg.

He and Apple look to be right. Apple's success in China underscores the depth of the country's fast-growing upper middle class. As Mr. Cook said, “I've never seen so many people rise into the middle class who aspire to buy Apple products.” It is this large number of aspirational, upwardly mobile Chinese citizens that likely hold the key to Apple's future growth and success as a company.

China May Ease Soon

History does not repeat, but it does have a way of 'rhyming'. This perspective may be an interesting way of looking at recent actions taken by Chinese policymakers.

China seems to have stopped letting the renminbi appreciate in recent days. It had permitted its currency to rise by 7 percent versus the U.S. dollar from June 2010 to August 2011 in an effort to rein in inflation.

But this may not be bad news...it may be a signal. It could be a signal that Beijing is getting ready to turn towards an easier monetary policy to support domestic economic growth.

The Chinese economy has held up very well so far. Government estimates are for the country to enjoy economic growth this year in excess of 9 percent.

Investors should recall that the last time China “locked” their currency against the dollar was in August 2008. This was just three months before China launched a $586 billion economic stimulus which was crucial to the global economy.

There are other signs too of a softening policy stance coming from Beijing.

China's central bank had raised interest rates roughly every two months and banks' required reserves monthly. But it hasn't raised rates since July or requirements since June.

There have also been stories in China's state-run media about the struggles of small companies due to a noticeable slowing in bank lending. Addressing this matter, China's premier, Wen Jiabao, asked banks to lend more to small businesses and at lower rates.

Stephen Green, an economist at Standard Chartered, believes an easing of policy could come this year: “It seems they are preparing the ground for something called directed easing. The ambition is more credit for small- and medium-sized enterprises.”

Jun Ma, an analyst at Deutsche Bank, agrees saying that in the fourth quarter “...we are likely to see some easing in credit”.

More decisive moves may be just a bit further down the road. Shen Jianguang, an economist at Mizuho Securities, forecasts that other monetary loosening such as cutting banks' required reserves may have to wait the arrival of the new year.

However, signs from Beijing are that investors should not look for a huge stimulus from China ala 2008. China is less dependent on exports today. A move to more domestic-led growth is giving Chinese policymakers confidence that China can weather the global economic storm in relatively good shape without a huge new stimulus.

So the parallels with 2008 are not perfect. But they do seem to be rhyming.

The New Oil Dynamics

The oil market changed back in 2009, but most Americans did not notice.

That was the year, for the first time, China temporarily surpassed the United States as Saudi Arabia's biggest and most important customer.

At the time, Saudi oil minister Ali Naimi said “Ten years ago, China imported relatively little crude oil from us. Now, it is one of our top three markets, and is the fastest growing market for us globally.” He added that this showed the increasing “depth of Saudi-Chinese relations”.

Today, when oil tankers leave Saudi ports with their load of crude oil, they increasingly travel eastward to the rapidly growing economies of Asia rather than to the established markets of western nations.

When looked at historically, this new trend is significant. Remember that the most of the oil industries in the Middle East were originally set up by western companies with the sole aim of providing oil for western economies.

The day when Saudi oil exports to China permanently overtake those to the U.S. has not arrived yet. But it will soon.

Saudi Arabia is also selling more oil to that other Asian economic giant, India. Saudi crude exports to India grew sevenfold between 2000 and 2008. The desert kingdom now provides about a quarter of India's oil.

Meanwhile, total demand for oil in the U.S. and Europe is flat at best.

The changing oil dynamics, however, is not a simple story. It's getting more complicated.

Look at Saudi Arabia. It has its own rapidly growing economy and is consuming more of its own oil. The kingdom consumed 3.18 million barrels of oil per day in the third quarter of 2011. This is only a bit less than the 3.25 million barrels of oil per day used by India during the same time frame.

Bottom line...roughly a third of Saudi Arabia's 9.8 million barrels of oil per day production last month was absorbed by domestic consumption. This means less and less oil is available to sell overseas.

Taken together with increased demand from Asia, it means higher prices for oil down the road for American consumers.