To those somewhat familiar with the world's spectrum of gold mining stocks, it has always been an inexplicable enigma why North-American and Australian gold stocks should perennially enjoy much higher Price/Earnings ratios than their South African brethren. Especially so, since historically the South African golds possessed much larger reserves, enjoyed greater profitability, and quite often paid out very handsome cash dividend yields.
Following are some of the cardinal reasons for this anomaly, and why there is such an inequitable and disproportional disparity of market values imparted to the South African gold mining stocks vis-ŕ-vis their North-American and Australian counter-parts.
Ignorance & Marketing -
Firstly, the global ignorance of the international investment world regarding gold ventures is encyclopedic and pervasive! In-depth studies demonstrate there is presently only 1 per 1000 investors who has just barely enough information about the gold industry to have a minuscule amount of his potfolio in some precious metals mining company. Now I am ONLY talking about North-American and Aussie precious metals mining companies. Although I have never seen any studies thereof, I feel certain the monumental dearth of information about the South African mining firms would suggest that perhaps ONLY 1 per 50,000 investors worldwide has enough data to justify an investment in that area. This gross lack of dissemination of information is due CHIEFLY to MARKETING… or more precisely, the lack thereof.
Whereas the North-American gold mining industry is consistently marketed, I do NOT believe the South African industry spends a SINGLE DIME on advertising and/or marketing. Here's a prime example of what I am talking about.
The Chamber of Mines of South Africa was founded by and for the benefit of the Gold Mines of that country - as the name implies. Understandably, it has members other than gold mines, but the gold industry dominates.
What we have here is the largest gold producing country in the world with its own industry association, which SHOULD be promoting its image and progress. HOWEVER, I was recently informed by a spokesman of that august body that it has NO BUDGET FOR ADVERTISING. It seems that one is supposed to learn about the South African gold mining industry through a process of spatial osmosis. In sharp contrast the US gold mining industry advertises heavily in comparison to South Africa - who you never hear a 'peep' from. It would indeed be interesting to know what percent of Barrick Gold's annual revenues are spent on MARKETING & PROMOTING ABX. Interestingly, nearly ALL North-American gold producers now have IR Offices.
It might indeed be revealing to find out much money is spent by the Investor Relations Departments of major U.S. and Canadian gold mining companies. The expressed purpose of IR Departments is to attract new investors to the company. This is MARKETING… something the South African gold producers would do well to learn.
To any reasonably OBJECTIVE ANALYST, the fundamentals overwhelmingly favor South African gold mines over North-American and/or Australian counter-parts. My opinion is NOT a function of any perceived political illusions, dilutions, realities and/or myths.
Whereas an international investor might be buried by his broker in hard-copy on North-American and Australian gold mining companies, the same hapless broker is indeed very hard pressed to even produce the symbol of any South African gold producer. CONSEQUENTLY, the North-American and Australian stocks have always boasted much higher Price/Earnings multiples than those displayed on Johannesburg Stock Exchange -- or for that matter the P.E.R. of South African ADRs listed in New York.
As an INTERESTING aside, South African gold stocks HAVE USUALLY ENJOYED MUCH HIGHER DIVIDEND YIELDS than their louder-mouth brethren.
Perhaps it is a smug attitude - or pretentious demeanor on the part of the South African gold producers - which prevents them from "tooting their own horns. However, I dare get into their faces by saying, "if you don't get your act together, and start marketing your companies, then JUST MAYBE, SOMEONE ELSE WILL!" Specifically, here is what I mean.
RANDGOLD has a PICAYUNE market capitalization of a mere $51 million versus its Current Asset Value of $200 million - that's buying a dollar bill for 25 cents! Please recognize there are a lot of HUNGRY & AGGRESSIVE "Mr. Munks" and "Barrick Golds" in the US and Canada - who may at this very moment be drooling over the likes of RANDGOLD, DEEP DURBAN & HARMONY GOLD MINES. In fact an American gold company with a much higher P.E.R. could conceivably take-over a "RANDGOLD" in a stock-swap, resulting in a ZERO-COST BASIS for the South African acquisition... SOMETHING TO THINK ABOUT.
If history is prologue - those who make the effort to be informed of the relative investment statistics of South African gold stocks vis-ŕ-vis their well-marketed and well-publicized competitors across the 'Big-Pond,' will indeed be the MOST REWARDED. Since the mid-1960s every single gold bull market has witnessed South African gold stocks SOAR 300-400%, while their North-American and Australian counter-parts climbed a '"paltry" 90-110%.
19 March 1998
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