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Good Morning, As I am writing this post Gold is up another $17 to $876/ oz. It would appear barring sudden dollar strength, we have succesfully broken the upper resistance level of $860 to $870; if we hold here $900+ will be the next level. Are You Invested In Gold Miners? If so, today’s post is a must read. – Good Investing!- Remember to Dare Something Worthy Today Too! – jschulmansr
Whether saddled to mutual funds like Fidelity Select Gold (FSAGX) or ETFs like Van Eck’s Gold Miners Index (GDX), gold investors have experienced a wild ride over the last year. While the recent volatility in gold prices is certainly enough to give investors pause, a good argument exists for the presence of a gold ETF or mutual fund in a well-diversified portfolio. Both FSAGX and GDX help investors mitigate the pitfalls of falling currencies and economic slowdowns. Since gold is a physical asset, it tends to maintain its value over time, giving wary investors an added measure of security as time-tested institutions vanish in the face of economic crisis.
FSAGX and GDX both invest assets in companies that are primarily engaged in the exploration, mining, processing and dealing of gold. As of FSAGX’s semiannual report in November 2008, the fund held seven out of ten of the same top ten holdings. While GDX tracks the NYSE Arca Gold Miners Index, comprising 32 small, medium and large companies incorporated in any gold index, FSAGX is managed by Joe Wickwire and is composed of 69 holdings. The similarities between the two funds are striking, but some investors prefer having a human, rather than an index, at the helm. The larger number of holdings in FSAGX also means a smaller concentration of assets in top holdings, reducing the exposure that investors have to any one portfolio component.
The top component for both FSAGX and GDX is Barrick Gold Corp. (ABX), constituting 13.77% of GDX’s portfolio as of January 13 and 9.5% of FSAGX’s portfolio as of late November 2008. The Toronto-based exploration company holds interests in a variety of gold resources in South America, Africa and Australia. At the end of 2007, ABX had 124.6 million ounces of proven and probable gold reserves, 1.03 billion ounces of contained silver within gold reserves, and 6.2 billion pounds of copper.
Goldcorp (GG), the second-largest holding for both GDX and FSAGX, saw shares battered with a series of downgrades and target price reductions in early January, after releasing lower guidance for 2009. Some analysts, however, have dismissed the tarnish to Goldcorp’s shares as an overstatement of the reality of an industry-wide slowdown. In GG’s latest report, the adjusted forecast calls for 50% growth in production through 2013—only 5% lower than analysts’ estimates. In 2008, GG produced a hefty 2.3 million ounces of gold, achieving low margins on a scale larger than those of other competitors such as Yamana Gold (AUY) and Agnico-Eagle Mines (AEM).
While the most obvious difference in deciding between an ETF and mutual fund is the fees associated with the two different investments, investors should consider several factors when choosing FSAGX or GDX. Even though the expense ratios of both funds are well below the category average—FSAGX is 0.86% while the ratio for GDX is 0.59%—many investors have gravitated to the ETF fund in recent years for the additional edge.
Investors who own FSAGX will have to hold shares of the fund for longer than 30 days in order to avoid a 0.75% redemption fee—a nerve-racking setback for nervous investors who prefer the option of getting in and out of investments quickly. As opposed to the once-a-day pricing method of mutual funds, ETFs like GDX trade continuously throughout the trading day, but this flexibility also brings an increased measure of volatility. ETFs tend to be more affected by changing news events than mutual funds are, causing surges and dips in price avoided by comparatively steadier mutual funds.
The differences between GDX and FSAGX are more apparent when comparing fund performance in recent months. GDX dropped more than 63% from July 14, 2008, to October 28, 2008, but it has since recovered 35%. FSAGX, however, fell only 60% from July 14 to October 28 and has recovered 36% in the period since. While their price movement is relatively similar, investors fearing intraday volatility may feel more comfortable with FSAGX than GDX, especially given its longer track record.
While putting assets into gold could prove to be a profitable move for many investors, it is important for prospective GDX and FSAGX buyers to keep the role of this commodity in perspective. With the ultimate success of gold investments weighing heavily on continuing inflation concerns, placing a bet on gold—or any narrow sector—could whipsaw investors as the inflation battle takes shape under the new administration. For those investors seeking the added security that gold could add to their portfolios in 2009, both GDX and FSAGX, with their solid track records and investor interest, are good places to start.
My Note: Mutual Funds (and there are many in addition to the above), are a good way to get a nice spread (basket) of different Gold Miners. In addition, I personally like to have holdings in Individual Companies too! I have 2 different Mutual Funds, in addition to holdings in many of the above mentioned companies. I also like a lot of the mid tier and junior Gold Miners too. I generally try to invest in companies that have production (or about to produce), with a lot of cash on hand (due to financing difficulties for comapnies). The whole sector has been beaten down in prices and if you look carefully, you can find many companies right now that are selling at or for less than actual book value. Personally, I am loading up! As always, do your due diligence and read all the prospectuses; and/or consult your investment advisor.
Kinross Gold (NYSE:KGC), one of the world’s best performing gold stocks, announced a public equity offering of 20.9 million common shares at $17.25 per share, with gross proceeds of about $360.5 million, to enhance the company’s capital position following the funding of recent acquisitions.
In 2008, the gold and silver miner bought Aurelian Resources for around $809 million. Since that time, the shares of stock have had average daily volume of over 11 million shares on the NYSE and traded in a 52-week range of $6.85-$27.40.
The Canada-based company has also granted the group of underwriters, led by UBS Securities Canada Inc., an overallotment option to purchase up to an additional 3.135 million common shares at the offering price. This option is available for 30 days after the offering closes. If this option is excercised in full, it will bump up the total proceeds to about $414.6 million.
The offering is scheduled to close on or around February 5, 2009. The company has 665 million shares outstanding.
Kinross ranks as number one global gold pick among a number of analysts and investors. Production for the group is anticipated to grow around 30% this year to around 2.45 million ounces.
The new money now being raised is targeted for general corporate purposes after recent acquisitions depleted around $180 million of Kinross’s existing cash. Just two months ago, Kinross shelled out $250 million on a 6 million ounce gold deposit in Chile.
The last quarter’s earnings growth was up an impressive 64% year-over-year, the balance sheet looks better than average with a total debt-to-equity ratio of just .017 and total cash of over $720 million.
The Kinross acquisition may have upped the tone for other gold miners. Harmony Gold (NYSE:HMY), the world’s fifth biggest gold miner by ounces produced, on December 22 announced the raising of R979 million before costs, by placing 10.5 million shares at an average price of R93.20 each between November 25 and December 19 2008.
The fresh capital is earmarked mainly to further pay down Harmony’s debt, which is targeted, on a net basis, to be around zero by mid-2009.
Among other capital raisings, during November, Agnico-Eagle Mines (NYSE:AEM), a leading Tier II gold digger, raised $252 million in a seemingly effortless offering.
Overall, when it comes to healthy, proactive and well-managed gold mining companies, the offerings are “in response to strong investor demand.”
Although right now I have both a long and a short position with KGC, I won’t be buying any more until the price per share corrects at least 20% below present levels. But I’m impressed with both the fundamentals of Kinross and the way the investment community views them so favorably.
The market volatility should help us to buy at lower prices, but the whiff of future inflation and the popularity of gold as a monetary alternative may keep share prices from falling as low as I would like. Patience though, is usually rewarded.
Disclosure: Author holds both a long and short position in KGC
Next – Do we have a potential Takeover or Meger Forming? – Read this next article…
Source: Financial Post Trading Desk
If Kinross Gold Corp. (KGC) had $705-million in cash at the end of the third quarter, why did it decide to raise another $360-million in a bought deal offering of 20.9 million common shares at $17.25 each?
The company said it will use the money to bolster its capital position and for general corporate purposes, but investors are surely wondering if any acquisitions are in the making.
An over-allotment option of 3.14 million shares would bring total proceeds from the offering to $415-million. Credit Suisse analyst Anita Soni also noted that Kinross is expected to have another $541-million in operating cash flow in 2009 (based on $700 per ounce gold), while it has $700-million in obligations this year (including capex of $460M).
“Kinross is well funded with its current cash and cash flow position and does not require additional funds for its current pipeline of growth,” she told clients, adding that the company is strengthening its coffers to capitalize on acquisition opportunities to shore up its growth profile.
Ms. Soni said “tack on” acquisitions like the Lobo Marte gold project deal with Teck Cominco Ltd. (TCK) for about $250-million, plus a royalty, in November, are possible. However, she also said a larger transaction in the senior or mid-tier space could surface, with Yamana Gold Inc. (AUY) and Teck’s Pogo mine as likely candidates.
Ms. Soni said:
Yamana has a good project pipeline but it does not have the near-term capital to fund that growth. An acquisition of Yamana would deliver a project pipeline and growth from 2009-2011 even using our conservative forecasts for Yamana. It is also likely that Kinross would be able to realize additional ounces beyond what we forecast for Yamana given Kinross’s ability to fund growth.
Yamana’s current multiple based on metal and share prices is around 1.2x, while Kinross is at 1.5x.
That’s it for today, Gold now up $19 at $878/oz! – Good Investing- jschulmansr
Dare Something Worthy Today!