I had the opportunity this week to connect with Jorge Beristain, head of Americas metals and mining equity research at Deutsche Bank. It was a fascinating interview, as Jorge communicates with CEOs of the world’s largest mining companies, and helps guide high-net worth individuals and institutions with their mining investments.

Key issues discussed during the interview were the expectations of  ”geopolitical disintegration” of the major gold producers, as well as commentary on asset sales following a year of billions of dollars worth of industry write-downs.

In addressing how the major gold producers can rediscover their leverage to the price of gold, Jorge said that, “Companies like Barrick and Newmont have become quite large, and it’s difficult for them to move the needle in terms of growth projects that have a meaningful impact on their income statement. By breaking these companies up somewhat, you lower the bar in terms of what would be considered a meaningful mine. You might be able to go for a 250k oz. mine instead of a million ounce mine, and as well, you would be able to create a company that has more direct leverage to the gold price on an earnings per share basis.”

He further added that, “The rising amount of geopolitical risk in the world whether it’s in North Africa, or the tensions in Asia, or even just tax-grabs in developed markets such as Australia or Mexico, is really causing me to question the value of going internationally as heavily as many of these mining companies have done in the past. At the end of the day, it strains your resources from not only a financial point of view, but also from a logistics and management capability point of view. You have to question how on top of their global operations some of these disparate companies really are.”

With respect to defending themselves against these growing geopolitical risks, Jorge said, “[One of the risks] is having this huge international diversification without having the controls in place, or even having the ability to control ultimately, what’s thrown at you by all these different governments, and all these different currencies and political environments. Where they may be a small fish in a big pond in another country, if they [the producers] grouped their assets and had some critical mass in one or two countries, they might have a bit more economic and political sway in that respective country.”

Commenting on the fire-sales occurring in the mining sector right now, Jorge said, “I look at iron-ore companies, copper, and other metals as well, and I am seeing certain transactions that give me pause. There were some examples in the iron-ore sector recently where companies took multi-billion dollar write downs and some asset sales were in fact for 10% of recorded book value, in other words, 90% off the carrying value.”
This was a powerful interview with one of the top mining analysts of North America, who rarely speaks publicly.  It is required listening for serious investors and mining equity students.

To listen to the interview, left click the following link and/or right click and “save target as” or “save link as” to to your desktop:

>>Interview with Jorge Beristain (MP3)

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Tekoa Da Silva
Bull Market Thinking

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