Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

An African Mining Stock for Brave Investors

Companies / Metals & Mining Jul 20, 2009 - 08:12 AM GMT

By: MoneyWeek

Companies

Best Financial Markets Analysis ArticleDominic Frisby writes: The life of an exploration geologist is not an easy one.

Despite spending many years in the remoter parts of the wild with just your boots, a pick and a tent for company, you might make just one significant mining discovery in your career. If you’re lucky, you might make three or four. Plenty make none.


Once you’ve made what might be a discovery, you have to come back to town. With the aid of some rock samples and a good deal of charm (not a trait often associated with geologists), you then have to persuade someone to give you some money so you can explore your discovery with proper drills and manpower.

Many difficult years down the road, negotiating booms, busts, impatient shareholders, tricky geological challenges, alien foreign practices and all sorts of other obstacles, you’ll get somewhere close to a decision point, when you know whether or not this thing is actually going to become a mine or not.
And then some greedy government comes along and snatches it all off you. It’s a wonder that anyone decides to become a miner at all.

Central China Goldfields (LSE: GGG) is a small Aim-listed exploration company, operating in China. The group was suffering from a lack of liquidity in its stock, a lack of investor interest and had been in an inexorable downtrend since 2006, like virtually every other Aim-listed explorer. Yet it did have some promising assets and it was making decent progress with them.

But last month, the company recommended that shareholders accept a deal which values its holding in its flagship asset, the Nimu mine, at RMB71 million (about £6.5m) on which the company then has to pay 35% tax. Apparently, the company’s local joint venture partner, SBMGE, “is of the opinion that it should take full responsibility for the future development of the Nimu Project”.

This is happening despite the progress the company had made with the asset over the last two years, not to mention recent reports that the mine contains world-class quantities of copper and molybdenum as well as the strategically-important rhenium used in the manufacture of jet engines.

Shareholders are not best-pleased, judging by discussions on various bulletin boards - it doesn't seem a great deal for such a promising asset. Yet it seems Central China Goldfields has little option but to accept, as it won’t be able to progress the project on its own.

But British investors had already paid many millions of pounds to fund the exploration of this mine and others in Central China. Are the Chinese happy for British investors to take the risk of exploration, but then demand the return of the assets when the resource is proven?

There are worrying developments in China

I must say, having once been very excited about the country, I see worrying developments in China. CCG’s experience is just one small example of what seems to be a growing trend. A benchmark price for iron ore was agreed earlier this year between the major miners and the major consumers. But the Chinese were never happy with the deal and wouldn’t put pen to paper. They wanted their ore cheaper.

Tensions were growing. Last month, Australian mining giant Rio Tinto, abandoned a planned $19.5bn investment from the Chinese state-owned metals group Chinalco. This, we are told, had Chinese hackles rising. Then last week four of Rio Tinto’s iron ore sales team, based in Shanghai, were arrested on suspicion of espionage and stealing state secrets. Was this some form of retaliation for the rejected Chinalco investment and the lack of cheap ore? Many Aussies think so.

You know when it’s ‘not about what it’s about’. I know from my days as a backpacker in some of the less salubrious parts of the world how common an occurrence it is for you to be minding your own business somewhere and then you find yourself arrested “on suspicion of espionage”. I remember innocently lying on a beach in Cuba to find myself “accused of espionage and stealing state secrets.” What the officials were really saying is: “We’re going to extract money from you”.

And China is far from alone in all this. About a year ago I wrote about Madagascar and what a great opportunity it presented for the intrepid, with its vast, untapped natural resources and mining-friendly jurisdiction. Some readers bought into a company called Pan African Resources, which was bought out several months later by Asia Thai Mining, and we made a tidy profit.

But on March 8th, 2009, President Ravalomanana’s armed forces refused to obey her orders, instead siding with repressed workers and peasants who had been in a state of rebellion since January. The army declared: “We on longer respond to the orders of our officers, we respond to our hearts. We were trained to protect the people and property, not to attack the people. We are the people”.

I know very little about the rights and wrongs of this revolution. I daresay the people are right. They usually are. But I’m mighty glad that I don’t have any money invested there (and so should you be). I don’t know how Asia Thai Mining will fare out of this, but the company has my sympathy, for what little it’s worth. Some people can make a fast buck out of revolution, but you need stability for real economic growth.

Investing in risky countries

That doesn’t mean you should avoid risky countries – but you do need to go into any investment like this with your eyes open. And it always pays to take some profits when they present themselves. That way, if an unexpected, company-changing event occurs, at least you’ll have something to show for your investment.

Of all the risky places to operate, Africa remains one of the toughest for the mining business. Companies in the less desirable parts are forced to live with corrupt practices. Deals are agreed, then renegotiated further down the road as the company develops, or different officials take charge, or existing officials become more greedy.

Perhaps rather like Moody’s, some kind of rating system should be introduced. There are good countries. These include Botswana, Namibia, Ghana and Mozambique. But then there are the bad and the ugly: Zimbabwe, Nigeria, Angola, Sudan, Somalia, Congo, Eritrea and Ethiopia to name just a few. I don’t mean to upset with my nominations of the bad and the ugly but that’s how I currently see it. South Africa is teetering and Zuma needs to get it right, so that it joins the elite former group. Everyone will be better off if it does.

An African mining stock for the brave

But if you’re looking for an explorer operating in the better parts of Africa, you might consider African Queen (CVE:AQ),the spin-off from the Madagascan Pan African Resources. The company has some exciting diamond projects in Botswana and Namibia and some gold projects in Mozambique, both early stage, of course, and plenty of cash to fund its activities.

With developments in the artificial diamond industry and because of falling demand, the outlook for diamonds is unsure, but management knows this and will be looking at other properties elsewhere. Ghana is Africa’s second biggest gold producer. Perhaps that would be a good place to go. Then they’ll tick all the ‘good’ boxes.

By Dominic Frisby for Money Morning, the free daily investment email from MoneyWeek magazine.

© 2009 Copyright Money Week - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Money Week Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules