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>Where to find cheap golds
By: David McKay
Posted: 2002/06/04 Tue 11:31 ZE2 | © Miningweb 1997-2002
JOHANNESBURG - Resources Investment Trust [LSE:REI], a newly UK-listed investment company, has pumped about 40 percent of its portfolio into small and medium-sized gold companies but is only trading about 10 percent above its initial listing price. The company, which listed in January at £1.00 a share and was last trading at £1.11 a share, has about 18 million shares in issue and has placed £2.25 million of 6 percent convertible unsecured loan stock (CULS). The CULS were for investors who wanted to invest cash into the business rather than shares: the company's asset base has been secured on the basis of share exchanges.
Interestingly, the underlying net asset value of REI have risen to £1.42 as of the beginning of May. HSBC, which was appointed broker and financial advisor to REI in April, believes the under-performance of the share price is related to the fund's relatively low profile. In addition, a number of resource companies who exchange shares for a stake in REI are looking to realise cash, the banker says.
Investors may yet prefer Merrill Lynch World Mining, the UK's only other investment trust focused on commodities. But HSBC comments that REI offers focus on mid and small cap plays in contrast to ML World Mining's interest in diversified mid to large cap companies. REI also has a mandate to invest in oil and gas companies.
REI's assets include 10 major investments representing roughly 70 percent of the total portfolio. Of these investments, about half are in gold including a 7.3 percent stake in Celtic Resources, an Irish listed gold play with the right to develop a gold resource in east Russia, Yakutia. According to REI, Yakutia is the world's largest gold deposit with reserves of 2.9 million ounces and inferred resources of 27 million ounces. Other gold investments are a 13.3 percent stake in Thistle Mining which recently bought the President Steyn mine in South Africa.
Day-to-day management of REI is handled by David Hutchins who previously managed M&G Investment Management's $750 million investment in the resource sector. He says REI's involvement in its investments is active with a view to stimulating corporate action where deemed appropriate. Hutchins and his colleagues - which includes Tjeld Tygersen of Lion Mining Finance - won't take positions on the boards of the companies in which they invest, but they will recommend changes in management where necessary.
Typical investment acqusitions for REI will be companies needing finance for early stage projects such as pre-feasibility studies. It does, though, have a 13 percent stake in Canadian-listed Ivernia West, the 50 percent owner of the Lisheen zinc mine in Ireland which produces about 144 000 tonnes of zinc a year. There may well be activity around Ivernia which has a pre-emptive right over the 50 percent of Lisheen it does not own. The other stakeholder is Anglo American which has been systematically exiting base metal projects.
The benefit of REI is that it offers well-balanced investment in high risk, high return resource companies. Given the improvement in the gold market, and the possibility that commodities in general will benefit from the recovery of the US economy, REI is well positioned to mop up residual investor interest.
Hutchins is relatively positive on the recent appreciation in the dollar gold price. There's always a danger the market will collapse but the gold sector is currently the next destination for investor appetite for risk and reward which, he maintains, is undiminished despite the burst in the tech bubble. The consolidation of the gold sector and a change in attitude to hedging means that the price is almost uncapped, he says.
Comment on this story >
Where to find cheap golds (David McKay)
.. This is cheap Gold! (PNB)
.. Hey! Gold panner finds largest nugget in Scotland since 1940. (a Dave.)
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