Whenever I make a purchase, I like to share my buys to document my journey towards financial independence. This latest purchase continues to diverge from the normal DGI stock buys that I normally pursue, as I shared in this post – Multipronged Approach to Investing and Recent Sell – The Big Reset Edition.
Regular readers of this blog are aware that I am not crazy about this stock market and the crazy valuations we are seeing. In addition, companies are routinely adjusting their financials, which isn’t being highlighted by the media. This I find is very concerning and fear the worst pushing me towards more safety trades.
Over the past few months, I have shared my moves in the precious metals space with a purchase of Silver Wheaton Corp (SLW.TO) and Pan American Silver Corp (PAA.TO). Continuing with the theme, I added another mining company, this time focused on gold. Note that at the moment, I own IAMGold Corp (IMG.TO), but have a covered call which is in-the-money and expect to expire in a couple of weeks and get called away. This was a way for me to get rid of a company that I am not very confident in — its a decent company, but the management hasn’t done a great job and there are better run companies in the space.
Last month, I initiated a position in B2Gold Corp (BTO.TO) (also trades as NYSE:BTG) with 500 shares @ C$3.60. The company does not pay any dividend.
B2Gold Corp. (B2Gold) is a Canada-based gold producer with approximately four operating mines and one mine under construction. The Company has a portfolio of other evaluation and exploration projects in various countries, including Mali, Colombia, Burkina Faso, Finland, Chile and Nicaragua. Its material mineral properties consist of three mines and one mine under construction: Otjikoto mine, an open pit gold mine located approximately 300 kilometers north of Windhoek, the capital of Namibia (Otjikoto Mine); Masbate mine, an open pit gold mine, located near the northern tip of the island of Masbate, over 360 kilometers south-east of Manila (Masbate Gold Project); La Libertad mine, an open pit gold mine located over 110 kilometers due east of Managua and 32 kilometers northeast of Juigalpa, Nicaragua (La Libertad Mine), and Fekola gold project, an open pit gold mine under construction located approximately 40 kilometers south of the city of Kenieba, Mali (Fekola Project).
Recent Buy Decision
- Gold is the oldest currency in human civilization. I have lost faith in the fiat currencies and am hedging by owning gold in my portfolio. While I own a little bit of physical gold, I also like to own gold mining companies as a way to gain exposure to the gold market.
- Gold is a tremendous value store that has stood the test of time. Some people may argue that it is a barbaric metal that does not really do much, but I vehemently disagree. Gold still plays the best value store and hedge against the current fiat currencies. Exposure to precious metals is warranted given the current economic outlook. There are plenty of challenges facing the financial and monetary system. It is not a question of ‘if’, but a question of ‘when’, the next recession or financial crisis will hit the markets. Once investors face challenges in the financial markets, everybody runs to safe havens such as gold and silver.
- The materials/precious metals sector has been the most hated/underperforming sector over the past 3-4 years. We could possiblynbe on the cusp of a new bull market.
(Image Source: Seeking Alpha)
- B2Gold is an intermediate gold producer with four producing mines. The company also bought, completed FS and is on track to start production of the Fekola mine in Mail. The company has a strong financial position compared to peers.
- B2Gold is projected to produce 510K-550K ounces of gold at an all-in cost of $895-$925 /oz.
- Those production numbers are expected to ramp up as Fekola comes online in late 2017. Current projections are for 550-600K oz in 2017 and 800-850K oz in 2018.
- A mining company is only as good as the reserves it has a stake on. The following chart summarizes the inferred reserves as of Dec 2015. As can be seen, the company has amazing resources and the mining operations should produce some juicy returns.
- The strength in US$ means that precious metals can face continued pressure on the prices. This could be a damper on the stock price for B2Gold.
- Gold prices might collapse bringing the all-in costs for B2Gold higher than spot price.
- Miners may also face a risk of a reserve failing to produce and the company miscalculating the assets present in ground.
I have been eyeing precious metals investments for over a year now and had been thinking that the time was not right. The breakaway late last year and earlier this year has me moving into this asset class as my faith in the rest of the financial system collapses. There is plenty to worry about in the rest of the economy and I believe we are at the start of a bull market in gold and silver as investors turn towards safety trades. Owning a high quality mining company such as B2Gold is my way of getting more exposure to gold. My position in IAMGold will come to an end later this month as I expect my covered call to end in-the-money and this move is my upgrade in quality of a gold mining company in my portfolio.
Full Disclosure: Long all companies mentioned. Our full list of holdings is available here.