A few days ago I was thinking of putting a lowball bid at $8.50 but the way it's falling it might go straight through that.
catch a falling knife
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A few days ago I was thinking of putting a lowball bid at $8.50 but the way it's falling it might go straight through that.
They all seem to be going the same way,the charts for some of these are real wake up calls ...
http://www.asx.com.au/asxpdf/20130625/pdf/42gnv10k7c3swj.pdf
strongly suggest against this now.
This is so oversold now, that it will turn on a dime of good news.
There are company specific factors with NCM that is making me nervous, but look at its current pricing its back to 2003 levels.
Now what was the price of gold in 2003?
What was the gold price?
What was the cost of extraction?
What was the exchange rate?
The dumbest thing I think NCM has done in recent time is not hedge any % of it production. Really quite stupid, they should have done at least partial hedges, especially after acquisitions.
A real business owner would have done this, if only to provide increase certainty about their return on investment.
These are the sought of questions I would be asking myself.
I am getting ready to go long again.
source: business spectator
One of the curious aspects of the response to Newcrest Mining’s recent announcement of some massive writedowns of asset values has been the call for blood to be shed as a result.
The market backlash to the foreshadowed $5-$6 billion of writedowns is separate to the controversy surrounding the "coincidental" flurry of downgrades by brokers in the days leading up to Newcrest’s announcement which are now being investigated by the Australian Securities and Investment Commission.
The larger part of those writedowns – about $3.6 billion – relates to the write-off of goodwill associated with Newcrest’s 2010 takeover of Lihir Gold.
There have been calls for the head of Newcrest chairman, Don Mercer, as well as some focus on chief executive Greg Robinson. Mercer has been chairman of Newcrest since 2006 while Robinson was chief financial officer for about five years before becoming chief executive in 2011, succeeding Ian Smith, now chief executive of Orica.
It would appear self-evident from those foreshadowed writedowns of Lihir that the takeover was a bad mistake, and that case could be argued. It isn’t, however, quite that simple and therefore the criticism of the company’s board and management isn’t quite as well directed or informed as it could be.
Newcrest acquired Lihir after a wrestle of wills with its board and management that pushed the price up in a deal that settled in September 2010 – two months before the Newcrest share price peaked in November that year at more than $43 a share. Today the Newcrest share price was below $9.60.
Newcrest, however, isn’t alone. The world’s biggest gold producer, Barrick Gold, had a share price approaching $US60 around the same time the Newcrest price was peaking. Today it trades below $US17 a share, a fall of more than 70 per cent. Bloomberg recently reported that the 14 largest gold miners had written down the value of their assets by about $US17 billion in less than 18 months and had lost about $US165 billion of market capitalisation since the gold price peaked in September 2011.
It is, in some respects, no surprise that the gold companies have seen their share prices – and asset values – decimated and that Australian producers have been particularly hard hit. The gold price has plummeted nearly 33 per cent from its highs and is down 30 per cent since late last year and the weak US dollar has, for miners with Australian cost bases inflated by the resources investment boom, compounded the damage.
The writedowns across the sector, however, have been compounded by one of the peculiarities of the sectors – its merger and acquisition activity has been almost exclusively scrip-based. That presumably relates both to the volatility of the gold price and the fact that the price includes an element of premium for its financial as opposed to industrial value.
In an era of massive consolidation of the sector in search of the particular scale and liquidity premium attributed to the big gold companies there has been a lot of scrip issued by gold companies.
Newcrest’s Lihir bid was financed about 95 per cent by the issuance of its own scrip and about 5 per cent by cash which was effectively financed by Lihir’s own cash reserves.
At the time Newcrest shares, perhaps because of its status as one of the world’s larger gold producers but also because it was a multi-mine group with fast-growing resources of gold and copper, had been significantly outperforming Lihir’s, so issuing scrip made even more sense.
Given that the Newcrest share price peak shortly afterwards and that share prices across the entire sector began tumbling around the same time, the price it paid for Lihir ought to be seen in context – it issued scrip at almost the historic high point of its market value to acquire more lowly-rated scrip.
Another way to look at that would be to say that when Newcrest acquired Lihir the target company shareholders ended up with about 36 per cent of the merged group. Even after the foreshadowed writedowns, however, Lihir’s book value would be around 50 per cent of Newcrest’s enterprise value, which suggests that Newcrest actually struck a pretty good deal back in 2010 and that even with its written down value it is worth meaningfully more than Newcrest paid for it.
It could be argued (as has been argued in analogous circumstances like Wesfarmers’ acquisition of Coles, Target and Kmart using scrip priced at an historic high) that there has been an opportunity cost to Newcrest shareholders – that the stratospheric share price could have been deployed in a "better" acquisition.
Given that there has traditionally been a meaningful "gold premium" associated with the larger gold companies, that’s a difficult argument to make – it would have made no sense to use the scrip to acquire anything other than a gold producer and the acquisition of any big gold producer would, as the entire sector demonstrates, have led to a very similar outcome.
The ASIC investigation of Newcrest’s compliance with the continuous disclosure regime will run its course and may or may not have some repercussions for the company, its board and/or its management.
The criticism of the Lihir deal, however, is too simplistic and lacks the context of Newcrest and Lihir’s own circumstances at the time of the acquisition, including the relative contributions of each of the companies’ shareholders, as well as the circumstances of the sector and what has subsequently transpired within it.
Read more: http://www.businessspectator.com.au...econd-look-newcrest-inquisition#ixzz2XF29i2tk
One of the curious aspects of the response to Newcrest Mining’s recent announcement of some massive writedowns of asset values has been the call for blood to be shed as a result.
The market backlash to the foreshadowed $5-$6 billion of writedowns is separate to the controversy surrounding the "coincidental" flurry of downgrades by brokers in the days leading up to Newcrest’s announcement which are now being investigated by the Australian Securities and Investment Commission.
The larger part of those writedowns – about $3.6 billion – relates to the write-off of goodwill associated with Newcrest’s 2010 takeover of Lihir Gold.
There have been calls for the head of Newcrest chairman, Don Mercer, as well as some focus on chief executive Greg Robinson. Mercer has been chairman of Newcrest since 2006 while Robinson was chief financial officer for about five years before becoming chief executive in 2011, succeeding Ian Smith, now chief executive of Orica.
It would appear self-evident from those foreshadowed writedowns of Lihir that the takeover was a bad mistake, and that case could be argued. It isn’t, however, quite that simple and therefore the criticism of the company’s board and management isn’t quite as well directed or informed as it could be.
Newcrest acquired Lihir after a wrestle of wills with its board and management that pushed the price up in a deal that settled in September 2010 – two months before the Newcrest share price peaked in November that year at more than $43 a share. Today the Newcrest share price was below $9.60.
Newcrest, however, isn’t alone. The world’s biggest gold producer, Barrick Gold, had a share price approaching $US60 around the same time the Newcrest price was peaking. Today it trades below $US17 a share, a fall of more than 70 per cent. Bloomberg recently reported that the 14 largest gold miners had written down the value of their assets by about $US17 billion in less than 18 months and had lost about $US165 billion of market capitalisation since the gold price peaked in September 2011.
It is, in some respects, no surprise that the gold companies have seen their share prices – and asset values – decimated and that Australian producers have been particularly hard hit. The gold price has plummeted nearly 33 per cent from its highs and is down 30 per cent since late last year and the weak US dollar has, for miners with Australian cost bases inflated by the resources investment boom, compounded the damage.
The writedowns across the sector, however, have been compounded by one of the peculiarities of the sectors – its merger and acquisition activity has been almost exclusively scrip-based. That presumably relates both to the volatility of the gold price and the fact that the price includes an element of premium for its financial as opposed to industrial value.
In an era of massive consolidation of the sector in search of the particular scale and liquidity premium attributed to the big gold companies there has been a lot of scrip issued by gold companies.
Newcrest’s Lihir bid was financed about 95 per cent by the issuance of its own scrip and about 5 per cent by cash which was effectively financed by Lihir’s own cash reserves.
At the time Newcrest shares, perhaps because of its status as one of the world’s larger gold producers but also because it was a multi-mine group with fast-growing resources of gold and copper, had been significantly outperforming Lihir’s, so issuing scrip made even more sense.
Given that the Newcrest share price peak shortly afterwards and that share prices across the entire sector began tumbling around the same time, the price it paid for Lihir ought to be seen in context – it issued scrip at almost the historic high point of its market value to acquire more lowly-rated scrip.
Another way to look at that would be to say that when Newcrest acquired Lihir the target company shareholders ended up with about 36 per cent of the merged group. Even after the foreshadowed writedowns, however, Lihir’s book value would be around 50 per cent of Newcrest’s enterprise value, which suggests that Newcrest actually struck a pretty good deal back in 2010 and that even with its written down value it is worth meaningfully more than Newcrest paid for it.
It could be argued (as has been argued in analogous circumstances like Wesfarmers’ acquisition of Coles, Target and Kmart using scrip priced at an historic high) that there has been an opportunity cost to Newcrest shareholders – that the stratospheric share price could have been deployed in a "better" acquisition.
Given that there has traditionally been a meaningful "gold premium" associated with the larger gold companies, that’s a difficult argument to make – it would have made no sense to use the scrip to acquire anything other than a gold producer and the acquisition of any big gold producer would, as the entire sector demonstrates, have led to a very similar outcome.
The ASIC investigation of Newcrest’s compliance with the continuous disclosure regime will run its course and may or may not have some repercussions for the company, its board and/or its management.
The criticism of the Lihir deal, however, is too simplistic and lacks the context of Newcrest and Lihir’s own circumstances at the time of the acquisition, including the relative contributions of each of the companies’ shareholders, as well as the circumstances of the sector and what has subsequently transpired within it.
Read more: http://www.businessspectator.com.au...econd-look-newcrest-inquisition#ixzz2XF29i2tk
now after reading through all that, it does pose one very exiting chain of thought that I never thought of before.
Yah yah yah, pay a high script price to acquire a another business that might be overvalued at the bid price.
Does this really matter?
Yes we have dilution, but we have dilution at an over valued script price.
How do we piece the 'value' on this.
One would be segregated cash flow, ie additional cashflow. But im stuffed if I know how to do this with a gold company (I can get the aggregated cash flow obviously, but to do a what if based on only the pre-consolidated results)
Another way, look at NTA, which is what I was looking at before anyway.
Just some food for thought.
Yah yah yah, pay a high script price to acquire a another business that might be overvalued at the bid price.
Does this really matter?
Yes we have dilution, but we have dilution at an over valued script price.
How do we piece the 'value' on this.
One would be segregated cash flow, ie additional cashflow. But im stuffed if I know how to do this with a gold company (I can get the aggregated cash flow obviously, but to do a what if based on only the pre-consolidated results)
Another way, look at NTA, which is what I was looking at before anyway.
Just some food for thought.
I agree but funnily enough I seem to remember this being lauded and applauded at the time and was what the market and analysts wanted a pure unhedged gold play, I guess thats what they want when the price is shooting to the moon its just the flipside can leave some with sore heads.
SBM at 38c today. I told you there'd be another entry given where I saw the gold price headed, but it hasn't bottomed yet.I just bought 40k of SBM @ .49 ... I hope it pays off
I'm sitting on the sidelines myself at the moment given the volatility in the sector.
At 38c SBM should be a steal, but we're still on the wrong side of the cost curve due to the Pacific Operations and if that can't get corrected then there's a real risk the gold price will settle below our cost of production...
Cheers,
Michael
This reminds me of a basic trading principle: cut your loses short. Hard to implement, though
For some reason, regular consistent earnings are a rare thing in Australia. The Banks may be an exception to this rule.
Warren Buffett has bought plenty of stocks outside the USA. Never once (as far as I know) has he bought anything in Australia.
Against my better judgement I've bought NCM ($9.40) and SLR ($0.57) over the last couple of days. I just couldn't resist such bargains!!
My better judgement would be to wait on the sidelines for a few months and wait for it to get much worse than it currently is. But I have no patience and investment money burns a hole in my pocket.
I do have a strange feeling that NCM is going to be another "Sons of Gwalia" and will be worth $0 in a few years time. But that didn't stop me.
http://en.wikipedia.org/wiki/Sons_of_Gwalia
My better judgement would be to wait on the sidelines for a few months and wait for it to get much worse than it currently is. But I have no patience and investment money burns a hole in my pocket.
I do have a strange feeling that NCM is going to be another "Sons of Gwalia" and will be worth $0 in a few years time. But that didn't stop me.
http://en.wikipedia.org/wiki/Sons_of_Gwalia
Yup.
Follow Roger Montgomery if you want Australian Buffet-style investing, or his blackbox Skaffold platform. (haven't got into it yet, but has Australian and Global markets depending on subscription)
this is a tipster thread.
In at $9.50, 4000 shares.
This is a trading position (with an underlying intrinsic value theme of NTA)
From a trading position, a stock that does not want to go down when the fundamentals (and in this case gold prices have dropped another 3%) deteriorate is, at leat short term, bullish.
Also short term the buy/sell orders have moved to a more neutral position, from an incredibly lopsided sell/buy formation.
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For those that don't know what they are doing, I can tell you that this scaffold platform is incredibly dangerous.
Why?
because it runs off algorithms based on current financial statements and analysts expected future results.
So two complications:
(a) financial statements are static, yet investing is organic
(b) the accuracy of analysts predictions.
So they run the real risk of false sense of security to the unwary for the financially naïve.
If investing was as simple as an algorithm, hen the investment banks would be perfecting it. They have the financial hitpower to employ the best in this industry.
Now I will state here that if someone is financially naïve then they could still do potentially well by investing in the Montgomery funds, not the scaffold platform.
Why?
because roger Montgomery used this platform to highlight investment potentials, but he is much too canny to just blindly invest based on whatever scaffold is spurting out.
His funds returns are quite good.
For those that want to see the risk of blindly investing based on scaffold, check out the stock:
MCE
This was rated as an A1 by scaffold (the safest and best) of Skaffold ratings a few years ago. Montgomery was all over this stock on public forums.
Yet look at its share performance over the last couple of years.
Interestingly is fund didn't get burnt over his comments.
Just a heads up.
just went online, gold down again, will be watching this closely.
Updated: and out, exited the position.
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