Recession Risk

13 Jan 2020

Dear Fellow Investors,

We returned last night from Australia where we visited the Newmont Gold mine located about 100 km from Perth. It is a vast open pit mine producing over 4 million US dollars of net profit every day based on the current gold price. Newmont has been in business since 1917 and operates mines all over the world.  

Yours truly standing next to our tour leader who has long experience in the mining industry. Newmont’s policy is safety first so when we visited the mine we were required to wear safety hats and protective glasses.

If one were interested to invest in a gold mining company one must be mindful of the risks. These include price risk as gold is very volatile.  Other risks include regulatory risks, tax risks, high CAPEX ,  depletion of resources risk and security risks.  

If you have a bullish view on gold a quality blue chip gold miner like Newmont is a good bet but do be mindful of the volatility and risks. A gold miner is a leveraged play on the price of gold. If gold goes up 10 % a miner can increase in price by 20 to 30 %. The same is true on the downside  should physical gold collapse.  

Newmont keeps a very low profile as the dirt road leading to the mine is not well marked. The headquarters has a small sign which could easily be missed. There is heavy vigilant security on active patrol. We had to go through a guard post to enter and exit the mine site.

Recession risk

Perth and Australia  is slowing down mainly because China has slowed down their purchases of commodities. One of my wife’s relatives has a friend who is a business broker and he said there are many restaurants up for sale as well as other small businesses.

Reasons include mandated high wages, a multitude of regulations and high taxes. Minimum wage is AUD 21.60 an hour., the highest in the world.  Why would someone take a business risk in this environment ? Just get a highly paid government job with little risk .

Our guide did say a mine truck driver earns over AUD 100,000 per year but his income tax is 40 %.

Of course, the government provides many benefits including free health care, education and free inner city buses.

The heat was severe and wildfires are killing many exotic animals. This is a tragedy but there are some signs of hope.

Critter of the week is a trained Kuala hunter  

SYDNEY -- Among the thousands of firefighters battling the catastrophic Australia bushfires, there have been four-legged furry heroes employed with a job of their own.

Dogs are being employed to rescue koalas during the fires, and with the flames expected to continue on for months, they're only just getting started.

TATE Animal Training Enterprises specializes in detector dog services in Sydney, and its team of pups has saved dozens of koalas, owner Ryan Tate told ABC News.