Musings on Investing

Zimbabwe: Is it changing?

Salazar Resources (SRL)

Most people focus on getting rid of the bad guys, say, Saddam Hussein or Muammar Gaddafi. They forget to imagine what the situation would be like once the bad guys are gone. After the departure of Hussein and Gaddafi, the situation of both Iraq and Libya became much worse.

Today, the media is euphoric about the ouster of Robert Mugabe as the head of state of Zimbabwe. In the linked article, I give my views on why Zimbabwe after Mugabe is going to get much worse.

In the old days Zimbabwe’s institutional spine was British rule and farmers of European heritage. Without their return in some form, Zimbabwe has no hope.

For most of the Third World, the future is very grim. Whatever stability they still have is a product of the institutions that European colonizers left behind. Without Europeans administering the Third World, these countries must revert to their tribal past, of never-ending warfare, disease, drudgery, and strife. Either through population expansion, war, or expansion of the exploiting class, the Third World will eventually end up in a Malthusian equilibrium and subsistence existence.

On investments…

I am no fan of Ecuador. But when investing, I have no favorite commodity or jurisdiction. I am always looking for a differential between the value that I get and the price I pay.

A very well-known company with a great management in a great jurisdiction might trade for higher than its value. Many people would continue to chase such a company if they focus solely on only one part of the equation: the value. One must also look at the price. I am happy to buy a company with bad, small, obscure projects in a bad jurisdiction if it is selling for less than its inherent value (with the jurisdictional risks discounted in the price). Again, the key is the differential between the value and the price.

Salazar Resources (SRL; C$0.115) has optioned one of its projects to Adventus Zinc (ADZN), a company I have written about in the past. ADZN is spending C$25 million to earn 75% of the project. I respect the competencies of the management of ADZN, particularly of its CEO, Christian Kargl-Simard.

Assuming that the money ADZN has committed itself to will be well-spent, the attributed value of the project remaining with SRL should leave very limited downside risk in owning SRL.

I mostly worry about covering my downside risks. Then the upside often takes care of itself.

SRL is very illiquid. I almost never give market orders. There have been huge volumes of SRL at C$0.115, which is where my limit order should be.

On other matters…

The draft program for the next Capitalism & Morality seminar is now available. I invite you to register early to help us with efficiently organizing the event. Also, the ticket price will increase next month.

I will be speaking at PDAC International Convention on 4th March 2018, in Toronto.

Warm regards,

Jayant Bhandari

Associate: Rajni Bala


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