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- Mark Twain on Gold Miners
- Where the gold is at
- A gold discovery… in Laos?
Today, I want to focus on
one important factor that can help you avoid a major pitfall in gold stock
investing: location.
I frequently get asked by
readers to look at specific companies in the gold sector.
It’s a tricky business
because there are thousands of junior gold mining companies, and well over 90%
of them will never mine a single ounce of gold. So for regular investors, the
gold sector is a minefield of unknowns.
They say that man has an
instinctive fear of the unknown. And for good reason – if you have no
conception of the dangers you face, or no information about the risks you
endure, then the imagination takes over. An unknown scenario has the potential
to be a worst case scenario.
As a
resource investor especially, you shouldn’t just fear the unknown, you should
avoid it. It’s vital to do your due-diligence when it comes to gold miners,
especially. You’ve heard me say it before, and Mark Twain says it best: a gold
mine is “a hole in the ground owned by a
liar."
So if you can’t find easily
verifiable information about a gold company’s deposit location, or if you find
information that gives you pause, then you have the easy decision to keep your
powder dry for another day.
As a gold investor in
particular, you have to be skeptical. You should be looking for reasons NOT to
own a company, rather than clinging to reasons for owning it. It’s easy to get
wrapped up in fancy graphics and exciting press releases from gold companies
that appear to be on the up-and-up. But that’s the whole point of those
graphics and press releases – to build excitement about the company. Most gold
mining executives make their bread and butter from stock options and share
appreciation, not gold mining.
Location –
which includes a company’s headquarters as well as their mineral deposits, is at
least as important as the size and quality of the company’s deposits, the
intelligence and luck of the geologists, the money it has in the bank to fund
exploration and drilling, etc.
That’s because an
unfavorable government or political atmosphere hostile to mining can derail
even the best gold deposits, stymie even the most brilliant geologists, and
suck up all the money in the world, making it effectively impossible to get a
single ounce of gold out of the ground.
To assist
me with today’s topic is reader Eddie B, who asks:
“Can you please check out PNA.AX who are primarily a
copper miner with gold as a credit to their mining activities in Laos?”
Depending on your brokerage
service, it might be impossible or difficult to buy this company in any event,
because it’s listed on the Australian Stock Exchange.
But I’m leery of this
company because of its location – no matter how good its reserve numbers might
be. According to the U.S. State Department, Laos is:
“…an authoritarian one party state ruled by
the Lao People’s Revolutionary Party. The central government continues to deny
citizens the right to change their government. The government infringes on
citizens’ right to privacy and does not respect the freedoms of speech, the
press, assembly, or association. Corruption in the police and judiciary
persists.”
Okay… so that doesn’t
sound like a place I want to send my money – but maybe the government is
corrupt enough to be supportive of foreign investment, but not so corrupt that
they’ll usurp that investment. Maybe not; according to a report from the United
States Laotian Embassy:
“The overall investment climate is poor, and rates
very low in international indices of transparency and ease of doing business.”
That doesn’t sound good at all. With gold
increasingly in the headlines, it would not be surprising in the least to see
the authoritarian Laotian government look at gold mines within their borders as
literal gold mines for their bottom line.
My personal opinion would be to avoid this stock
until and unless there is some substantial regime change in Laos that was more favorable to
personal freedom in general, and foreign investment in specific.
With thousands of gold mining stocks vying for your
investment capital, you have the benefit and the challenge to be particular
about who gets it.
If you’re looking for a safer gold company location,
I recommend taking a look at a company Ian Wyatt, Chief Investment Strategist
and Editor of Small Cap Investor Pro
recently recommended to his subscribers.
This North American company has over $20 billion in
reserves, and they’ve already begun profitable gold production, so you know
they’re capable of getting those reserves to market. Over the past 8 years,
they’ve more than doubled gains made in gold’s price. While gold made 318%
gains since 2002, this company gained more than 700%.
If you’d like to read more about this company, you
can click
here for Ian’s full write up.
Good investing,
Kevin McElroy
Editor
Resource Prospector