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David Kempton: update on my gold and resources tips

'Put 10% of your funds in gold and hope it doesn’t go up,' is an old investment adage for those who seek a safe haven in the precious metal. Fortunately, gold mining stocks have done much better than that.

 
David Kempton: update on my gold and resources tips

'Put 10% of your funds in gold and hope it doesn’t go up,' is an old investment adage for those who seek a safe haven in the precious metal. Fortunately, gold mining stocks have done much better than that.

Pause for breath

There has been such a strong run in the junior resources and oils sectors, that it is worth pausing to consider where next. Take profits or buy more on weakness?

In early May when the world markets were in disarray and we seemed to be faced with a hung Parliament and weak government, Citywire phoned me whilst I was walking in the Luberon in France, to ask for an opinion on where to invest.

I had no hesitation in suggesting gold, and that junior miners were the best way to play it. I have always enjoyed the old Wall Street  adage, 'put 10% of your funds in gold and hope it doesn’t go up'. Gold is the ultimate refuge in times of uncertainty and, whether there is inflation or deflation, it makes no difference.

Back in early May, I suggested that you would be safe in some undervalued resource companies. In the four months since, all those that I recommended have appreciated, Adamus 62%, African Aura 47%, Centamin 28%, Extorre 63%, Vatakoula 19%.

I would not take profits now in any of them, and have taken up the rights in Adamus today to increase my holding.

Nine months ago, at the end of December, I mentioned five resource stocks, which I thought could increase in multiples, but were clearly in a high risk category. Performances since are Polar Star 56%, Pantheon (oil exploration) 24%, Greenland -34%, African Consolidated -33%, Olympus Pacific (then called Zedex, but since merged) 67%.

Greenland is a large player in rare earths (and uranium) and seeks a large partner. Hold on there, since it could still be terrific, and I feel even more enthused now, than I did nine months ago. 

African Consolidated is in Mr Mugabe’s Zimbabwe, has enormous potential in several minerals, especially diamonds. I’ll stay with it, and, whilst not holding my breath, feel that the potential rewards justify the stake.

I am very excited by the recent Polar Star announcements, and feel that the market still under estimates the potential. It is a large holding of mine, but I will continue to buy even more on weakness.

Olympus Pacific is also under appreciated and has the potential to become a very big player, operating from the stable, friendly Vietnam. I don’t have enough of these and will buy more on any weakness.

To demonstrate the strength of the recent run, consider increases in the junior golds that I suggested in my article at the end of July, a mere two months ago. Maudore 59%, Olympus 34%, European Goldfields 51%, Kingsrose 22%, Medusa 21%.

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3 comments so far. Why not have your say?

Michael Hellman

Sep 23, 2010 at 10:55

I admire your bravery. and forsight. But i have neither so I invest in the junior mining investment trust.

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Hotrod

Sep 23, 2010 at 11:45

Thanks David for the update, I have been following your recommendations closely. I must admit you have produced some pretty impressive results. I have been very reluctant to follow suit because of the high risks involved and the danger that some of these shareholdings could become illiquid if hope value is not justified by future reality.

I retain holdings in Madusa Mining and Petropavlovsk on the grounds that they are profitable producers in their own right and should maintain viability even if sentiment is diverted elsewhere.

Greenland Minerals looks tempting as a potential ten bagger, but I notice that the company has renegotiated the terms of its licences to include uranium prospects. My feeling is that the company would find it difficult to present a case for profitable extraction of rare earths (assuming that it finds them) without including uranium. This process would involve a substantial mining operation which could take years to pass through the planning stages.

There is definitely significant upward pressure building in the gold market, despite the central banks trying to suppress it. In the past this has resulted in a spike in value. (a bubble which has quickly burst if you like). Vince Cable and others quite rightly, hate this volatility. But the fact of matter is: Short termism rules OK.

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Graham Barlow

Sep 23, 2010 at 13:07

The more unstable International markets are the better Gold is. It seems to be the ultimate currency in the long run .It always seems to come back. Its controlled price ultimately became unsustainable. The trouble is Mark Twain's quote:- "A mine is a hole in the ground with a liar standing next to it"

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