Editorial Contributor
Evil Knievil’s
words of wisdom Randgold – all that glitters is not gold. I am 65 years old and got married in 1969 in central Africa where my wife and I lived for the ensuing four very happy years. I had arrived, excitedly, in the belief that Ian Smith in Rhodesia should be overturned forthwith. However, after a few months looking at African government in practice, I realised that that was a silly idea. Just look at Zimbabwe today. I have always since followed developments in Africa and therefore marvelled at UK investors’ willingness in the early noughties to turn a blind eye to the history of economic development in sub-Saharan Africa. The governments there note that approving the influx of foreign capital-financed projects is beneficial in the short term, particularly during the development of the project. However, there comes a moment when no more cash is being brought into the territory and it is worth unilaterally rescinding the licences that attracted the capital in the first instance, thus in effect giving the benefit of the development expenditure to a local politician. If in doubt, look around the DRC. I shall not waste your time, but I could go on and on and on. We are now in this phase of “repossessions” as the economic optimism of the noughties evaporates.
28 | www.financial-spread-betting.com | June 2012
Randgold (RRS) got the hint of the threat of that a few weeks ago when there was some question as to whether Tuaregs (camel-riding nomads) would take control of Mali, Randgold’s principal area of operations. In short, there re-emerged the threat of adverse political developments which are entirely beyond the guest corporation’s control. Make no mistake: Randgold is not a small company: at £48 a share it is capitalised at £4.4bn and is a member of the FTSE100 index. And it is its size which is key to understanding the future. I myself turned mega bullish on gold in 2001 when our very own pet lunatic Gordon Brown sold Bank of England gold. I knew that from that moment on, gold bugs were on a free ride. And, as it happens, I have made about £5m on gold shares since then – although I must concede that the last two years or so have been very disappointing as further gold price rise expectations have become muted. However, seemingly immune from this downturn was Randgold since institutions seeking gold price appreciation benefits could only deal in the UK market in size by investing in Randgold. Thus its capitalisation grew out of all proportion to its prospects.