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/.
Showing posts with label gold. Show all posts
Showing posts with label gold. Show all posts
Thursday, September 6, 2012
Tuesday, December 27, 2011
A Different Way to Invest in Gold
When people think about investing in gold, they think of the traditional methods. These methods include gold bullion and coins along with gold stocks, funds and exchange traded funds.
There is another way to invest in gold that is rarely though about...that is investing into emerging market economies with large gold mining sectors.
The countries where the gold mining industry makes the biggest contribution to GDP are not places where you may think of like South Africa. But it is smaller countries such as Mali and New Guinea where gold a big part of the nation's GDP. Other countries where gold mining contributes a decent percentage of GDP include Tanzania, Ghana, Uzbekistan and Peru.
In Tanzania, for example, the value of gold exports has tripled over the past five years to $1.5 billion. And this is due solely to rising gold prices.
Of course, to further benefit from the expansion of the gold mining industry, these frontier market countries will need to continue stabilizing their politics and also put in more incentives, such as tax breaks, for overseas mining companies to establish operations in their country.
Since these are frontier markets investors may wonder to invest into their gold mining sector. The best way to do that is through gold mining companies which are heavily exposed to these countries.
One example is AngloGold Ashanti ADR(NYSE: AU) which has invested in Ghana, Mali, Tanzania and Guinea in the past few years. It also started exploration activities in Gabon and the Congo.
Another company to consider is Harmony Gold Mining ADR (NYSE: HMY) which has expanded its exploration activity in Guinea extensively.
Finally, Kinross Gold (NYSE: KGC) has expanded its operations greatly in West African nations.
Investors should keep in mind that in addition to the risk that gold prices will fall, there is still a large political risk in many of these countries. So investors may want to scale in to their positions.
There is another way to invest in gold that is rarely though about...that is investing into emerging market economies with large gold mining sectors.
The countries where the gold mining industry makes the biggest contribution to GDP are not places where you may think of like South Africa. But it is smaller countries such as Mali and New Guinea where gold a big part of the nation's GDP. Other countries where gold mining contributes a decent percentage of GDP include Tanzania, Ghana, Uzbekistan and Peru.
In Tanzania, for example, the value of gold exports has tripled over the past five years to $1.5 billion. And this is due solely to rising gold prices.
Of course, to further benefit from the expansion of the gold mining industry, these frontier market countries will need to continue stabilizing their politics and also put in more incentives, such as tax breaks, for overseas mining companies to establish operations in their country.
Since these are frontier markets investors may wonder to invest into their gold mining sector. The best way to do that is through gold mining companies which are heavily exposed to these countries.
One example is AngloGold Ashanti ADR(NYSE: AU) which has invested in Ghana, Mali, Tanzania and Guinea in the past few years. It also started exploration activities in Gabon and the Congo.
Another company to consider is Harmony Gold Mining ADR (NYSE: HMY) which has expanded its exploration activity in Guinea extensively.
Finally, Kinross Gold (NYSE: KGC) has expanded its operations greatly in West African nations.
Investors should keep in mind that in addition to the risk that gold prices will fall, there is still a large political risk in many of these countries. So investors may want to scale in to their positions.
Thursday, November 17, 2011
Central Bank Buying of Gold at 40-Year High
It really is saying something when the purveyors of the world's paper currencies – the world's central banks – are busily buying gold at a nearly unprecedented rate.
They seem to not believe in their own product – paper money.
The stunning headline, from the World Gold Council, is that central bank gold buying is at a 40-year high.
Central banks only became net buyers of gold last year after two decades of heavy selling.
Central banks made their largest purchases of gold – a net 148.4 million tons – in decades in the third quarter of 2011. The banks took advantage of a sharp drop in gold prices in September.
The World Gold Council declined to identify the central banks doing the buying. It said only that “a slew of new entrants emerged wishing to bolster gold holdings”. You can bet that most of the new entrants were emerging market central banks looking to diversify away from the U.S. dollar.
Marcus Grubb, head of investment at the World Gold Council, forecast that central bank buying for the full year could be 450 million tons. This implies a further 90 million tons will be purchased in the fourth quarter of 2011.
Do not be surprised if the total purchased for the year comes to 500 million tons. The people in the emerging markets are not fools...they see the how the U.S. and European economies are “burning” while the politicians are “fiddling”.
In addition to buying physical gold (the best method), investors can also exposure to gold through the use of exchange traded funds (ETFs) such as the ETFS Gold Trust (NYSE: SGOL).
They seem to not believe in their own product – paper money.
The stunning headline, from the World Gold Council, is that central bank gold buying is at a 40-year high.
Central banks only became net buyers of gold last year after two decades of heavy selling.
Central banks made their largest purchases of gold – a net 148.4 million tons – in decades in the third quarter of 2011. The banks took advantage of a sharp drop in gold prices in September.
The World Gold Council declined to identify the central banks doing the buying. It said only that “a slew of new entrants emerged wishing to bolster gold holdings”. You can bet that most of the new entrants were emerging market central banks looking to diversify away from the U.S. dollar.
Marcus Grubb, head of investment at the World Gold Council, forecast that central bank buying for the full year could be 450 million tons. This implies a further 90 million tons will be purchased in the fourth quarter of 2011.
Do not be surprised if the total purchased for the year comes to 500 million tons. The people in the emerging markets are not fools...they see the how the U.S. and European economies are “burning” while the politicians are “fiddling”.
In addition to buying physical gold (the best method), investors can also exposure to gold through the use of exchange traded funds (ETFs) such as the ETFS Gold Trust (NYSE: SGOL).
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