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Investors Are Still Waiting for a Gold-Mining Merger Wave

Investors Are Still Waiting for a Gold-Mining Merger Wave

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14 March 2019



Video commentary for March 13th 2019



Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: S&P500 pauses near 2800 again, technology leading on the upside, peak of the interest rate cycle, bond yields pause, gold steady, Pound surges, FTSE 250 steady, oil hits new recovery high, 



China's economy is 12% smaller than official data say, study finds

This article by Gabriel Wildau for the Financial Times may be of interest to subscribers. Here is a section:

For years, the sum of China’s provincial GDP has exceeded the national figure, a clear sign of statistical inflation at the local level. The National Bureau of Statistics (NBS) has previously acknowledged that “some local statistics are falsified”, and in 2017 the central government accused three provinces in China’s north-east rust belt of fabricating data. 

The Brookings paper highlights how the NBS in Beijing struggles to make adjustments to the inflated data it receives from local officials. The analysis finds that the central government’s adjustments to local data are mostly accurate before 2007-08 but “after this date no longer appear to be accurate”. 

The NBS said last year that it would assert greater control over provincial data collection beginning in 2019 to eliminate discrepancies between local and national data. 

“NBS has done a lot of work to weed out the fake numbers added by local government, but it just doesn’t have enough power and capacity, nor the right incentives,” Michael Zheng Song, economics professor at the Chinese University of Hong Kong and a co-author of the paper, told the FT. “It would be unfair to blame NBS for fabricating GDP numbers.”


Eoin Treacy's view

The reliability of Chinese data has been an enigma investors’ have been pondering for decades. It’s not really a question we can answer with any degree of confidence so the best course of action is to monitor the actions that can be backed up with some degree of confidence.



Brookfield to Buy Marks's Oaktree to Make Alternatives Giant

This article by Gillian Tan and Scott Deveau for Bloomberg may be of interest to subscribers. Here is a section:

As the private equity industry gathers near record sums of assets, institutional investors aim to make big allocations to fewer firms with a wide range of products. Today’s deal creates such a one-stop-shop: it bolsters the credit business of Brookfield, which has traditionally focused on real estate, and provides Oaktree, a specialist in distressed debt, exposure to assets that thrive outside turbulent economic times.

“We had difficulty, up until now, meeting the strict terms of some of those mandates,” Brookfield Chief Executive Officer Bruce Flatt said in a phone interview. “Very few firms in the world are able to do that.”

Oaktree co-Chairman Howard Marks said in the interview that the two firms mesh “culturally and in terms of product lines without competing and overlapping.”


Eoin Treacy's view

Warren Buffett has been preaching for years about the merits of owning a piece of a business and private equity investors have been listening. Private equity has taken private exactly the same kinds of companies Buffett favours, which are generally those with niche businesses, strong cashflows and low leverage.



Investors Are Still Waiting for a Gold-Mining Merger Wave

This article by Alistair MacDonald and Ben Dummett for the Wall Street Journal may be of interest to subscribers. Here is a section:

Miners and bankers give a variety of reasons for why the gold mining merger wave hasn’t come. The poor performance of gold miners’ shares means that sellers want to hold out for better valuations and buyers are reluctant to use shares they believe are undervalued for acquisitions.

The S&P TSX Global Gold Index is down 51% since its 2011. The S&P 500 has doubled in value in that time.

The industry as whole has a poor record in M&A. Miners overspent during the decadelong bubble that ended in 2011. That put off investors and made some executives wary of doing deals.

In 2016, PwC calculated that big miners had written off $200 billion of the value in acquisitions and projects over the previous five years.

Executives may be reluctant for another reason, investors say. They don’t want to put themselves out of a well-paid job by merging or selling their mines.


Eoin Treacy's view

Ore grades at gold mines have been contracting for years but the massive investment in additional new greenfield sites during the bull market did not result in massive new sources of supply. Nevertheless, mining productivity remains high because production is more efficient today because of technological improvements.



Eoin's personal portfolio: precious metal long initiated March 8th



Eoin Treacy's view

Details of this trade are posted in the Subscriber's Area. 



2019: The 50th year of The Chart Seminar



Eoin Treacy's view

I have had word from the inestimable Mrs. Fuller that the London Philharmonic Orchestra are planning a memorial concert on October 5th at the Royal Festival Hall. It is envisaged that there will be drinks and canapes afterwards. Since this is the 50th year of The Chart Seminar we will be conducting the event on October 3rd and 4th.

I also plan on holding a New York event, potentially in June, and am in discussions with a partner in how best to organise it.

In the meantime, if you have any questions, would like to attend, or have a suggestion for another venue please feel to reach out to Sarah at [email protected]  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non-EU residents are not liable for VAT). Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.








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