Jim’s Mailbox

Posted at 11:36 AM (CST) by & filed under Jim's Mailbox.

Jim,

Thank you for all your effort and work. It is appreciated by many as these times prove to be very interesting indeed.

If gold mines become nationalized am I correct in my assumption that the shares would essentially become worthless (obviously depending on the specific mine in question)? Would it not be irrelevant whether or not one owns them in paper certificate or other?

Thanks for your consideration to my question,
CIGA Jeff

Dear Jeff,

Most all companies which would include us buy insurance against being nationalized offered by the World Bank and other quasi governmental entities at the point of the project development loan. The title to nationalized properties, if nationalized, are turned over to the insurance company by the operator that guarantees the property values and/or earnings cash flow. If nationalization ends, the property is returned by the insuring entity to the producer. There are varying forms of agreement of reimbursement by the producer to the insurance entity when the problems end and title reverts to the company. The shares of the company are far from worthless if nationalized.

No nationalized property in the history of man has ever made a profit or produced effectively. Chaves obviously never checked the economic history of nationalization.

You cure this problem by giving a proper share of the operation to the real owners of the mineral – your host country.

You invite nationalization by the practice of colonialism in mining, as all majors do.

Regards,
Jim

 

Hi Jim,

I was quite captivated by your interview with respect to the ISDA. I was a bit surprised neither you or Ellis mentioned what impact the pending event would have on US bond prices, especially the 30 year bond.

What is your take on the impact to the US debt market, assuming the events unfold this week as Jim expects?

I am not soliciting any financial advice, strictly an opinion based on current events.

Thanks,
CIGA Gary

Gary,

Remember what a combination of QE and Operation Twist are? That is non-economic government buying of its own debt.

In time the long bonds are toast, but selling short to the Fed has great risk. Therefore avoid them until 2014.5.

Regards,
Jim

 

Jim,

Thanks for the interview. Does that mean the opposite? Will we get a huge blast off in all risk assets after the forthcoming announcement?

Thanks as always,
CIGA Kevin

Kevin,

No default means the euro is ok as we walk down a road toward perdition papered by QE3 and "no default" edicts.

Jim