Ed Bowie is an investment manager at Altus Capital Ltd., a London-based company which invests primarily in precious metals and natural resources. Last summer, Altus said the resource sector was experiencing “natural selection.” The worst companies and least knowledgeable investors were set to leave the space.
In Altus’ most recent letter to shareholders, Ed explained how senior mining companies failed to create shareholder value when the price of gold was on the rise. They were overly optimistic about the future prices of the metals, misrepresented the true costs of their operations, and were careless with debt and shareholder capital.
As a result, the gold mining industry suffered tremendous write-offs and losses throughout 2013. Billion-dollar acquisitions were abandoned. Share prices sank to new lows. And many management teams and CEOs from the boom years were thanked and excused by their boards.
Because they frequently under-reported the costs of mining, shareholders overestimated the profitability of these companies and governments demanded greater taxes and other social rents because these mines were perceived as highly profitable.
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The miners have started 2014 very well indeed on the back of rising gold prices, so the question is; is this the real deal or another head fake?
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