Musings on Investing

Leverage is Mining Investors’ Mirage

Atacama Pacific Gold (ATM) and ValGold Resources (VAL)

The gold price has gone up by more than 100% in the last ten years. It has gone up by 280% in the last twenty years. Ironically, many gold bugs have come to see gold and most commodities as non-performing assets. This has happened because they made a fallacious assumption that an increase in demand for commodities would directly translate into an exponential increase in stock prices of mining companies. Alas, this did not happen.

The biggest culprits behind the destruction of wealth are the rules of thumb that investors apply to “value” companies. Using isolated rules of thumb, what looks cheap is often uneconomical and wealth destroying. I explore these issues in my latest article for the Mining Journal.

On investments…

Atacama Pacific Gold (ATM; C$0.71) is being acquired. There is a 25% arbitrage upside in owning ATM. There are a couple of big sellers in ATM and the deal will take about two months to close. So there is no reason to chase it.

Also, ValGold Resources (VAL; C$0.12) is being acquired. There is a 10% arbitrage upside in owning VAL. I usually wait for a 20% arbitrage upside to emerge before buying.

Warm regards,

Jayant Bhandari

 

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