Last week, I detailed my personal experience from working inside the world’s largest gold miner (Barrick) and watching the company’s demise.
You can revisit that piece here.
That experience taught me some key insights…
Most importantly, it taught me the importance of investing alongside the commodity cycle.
And from demise to opportunity…Barrick’s failure opened the door to a brand-new entrant in Australian gold mining.
One that would go on to become the country’s largest!
So, sit back and read on.
Because today, we’ll unlock the secrets behind why some miners fail miserably while others wildly succeed.
Successful CEOs understand
the Commodity Cycle
Shifting back to Zambia and my time with Equinox Minerals.
I have little doubt that Equinox’s CEO understood the commodity cycle intimately.
He and another geologist established the company in the late 1990s and built it up through the upward leg of the commodity boom in the early 2000s.
Ultimately, he was building his company to secure a buyer at the top of the market.
And his timing was spot on…
As I wrote in last week’s piece, Equinox’s CEO secured a buyer just a few weeks after copper reached its all-time high in 2011.
And I believe the timing came down to an intimate understanding of the cycle.
You see, this Equinox CEO held a salary just a fraction of Barricks’s chief.
Without the legions of lawyers, financial and economic advisors like the world’s largest gold miner had at the time.
Yet his knowledge and understanding of the cycle made him infinitely more valuable to those investors who backed his company.
And as one CEO exited the market at a prime time, another was paying dearly.
As I highlighted last week, things began to unravel when Barrick realised its mistake.
I know, I was there!
I decided to stick with Barrick after it bought out Equinox.
And that gave me another valuable insight…
I went from watching Equinox’s successful growth story to observing the demise of the world’s largest gold miner.
And within a few months, Barrick pivoted from a manic buyer to a panic seller!
Selling off global assets, including key mines across Australia.
And that’s where we step into Part II of this boom-to-bust tale.
The demise of the world’s largest gold miner gave birth to a new entrant in Australian mining…
A new giant emerges
Part II is set in the Eastern Goldfields of Western Australia.
Few people know that the Canadian-owned Barrick was once a major stakeholder in the development of gold mines across the world-famous Eastern Goldfields.
For years, Barrick invested heavily in exploration and new mine developments across this region.
But the only memory of that today is a few rusty Barrick signs flapping in the wind on some distant exploration track.
So, why take you back here?
Well, in the wake of its Equinox disaster in 2011, Barrick was looking to offload assets at any price. It was 2014, and gold prices were plummeting.
Barrick’s shareholders were openly cursing executives at shareholder meetings; not only had the world’s largest gold miner made the mistake of ‘diversifying’ into a new commodity, copper…
But it had done so at the very peak of the market!
This would mark the beginning of Barrick’s demise.
In response, the gold miner rapidly offloaded its vast treasure trove of global gold mines.
Operations it had spent decades discovering and developing… These were thrown into the market virtually overnight!
The company panicked as it attempted to preserve cash and appease shareholders.
But just like its terrible decision to buy at the top of the market, Barrick was making another fateful mistake…this time, it was selling at the very bottom!
The Rise of Australia’s Biggest Gold Miner
And recognising the fear and opportunity, a small group of Aussie bargain hunters emerged…
An unknown mining engineer called Bill Beament and two of his former engineering mates swindled a deal that would create a life-changing opportunity.
They purchased Barrick’s Western Australian projects for a steal…three mines for three million ounces of gold, plus infrastructure.
All for the paltry sum of $100 million in cash!
The acquisition cost the trio a measly $30 an ounce.
A counter-cyclical bet that will go down in mining folklore.
Catapulting an unknown penny stock into what would become Australia’s largest gold miner: Northern Star.
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| Source: The West Australian |
Parts I and II of this story clearly show how the commodity cycle can pulverise those who fail to observe it.
While gifting those who pay close attention.
As an investor, it pays to study the calamitous rises and falls that occur through booms and busts across financial cycles.
I was lucky enough to be on the ground and see this take shape first-hand.
And from what I’ve observed, titles and academic credentials make little difference…
Most company executives pay more attention to the daily news feed, buying when conditions become feverish and selling or halting growth as the market slows.
In other words, they are doing the opposite of what good investors should do.
Given everything I’ve outlined, it pays to invest alongside the small group of ‘counter-cyclical’ movers…
Those with a proven ability to read the market and act contrary to the majority.
That’s one of our key strategies at
Diggers and Drillers
D&D is a service that recommends stocks across mining and exploration, where I use the commodity cycle to align our investments.
And on that note, so does my colleague Brian Chu.
Brian’s just finished putting together a presentation focusing specifically on how gold stocks move according to cyclical patterns in the precious metals market.
To find out more, you can do so here.
Enjoy!
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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