Another Example of Risk in Investing in Mining Companies-This time It is Chavez in Venezuela!
The Madman Dictator Chavez's so called "Government" (more like Mafia) announced today that it will take over top gold and diamond mines from Foreign companies who have apparently "failed to exploit them" and "are using their mining holdings mainly to speculate on the market". See full story here
This guy is crazy. He has ruined Venezuela, the state controls everything now. But I am no politician, I am interested in the financial aspect of all this (although I do feel bad for the wonderful people of Venezuela. I visited Venezuela in 2001, before Chavez started his craziness-and it was just a happy and merry-go people country, I thought. Not anymore...). US based Hecla (stock symbol HL on the New York Stock Exchange) and Gold Reserve Inc (GRZ on Amex) and Canadian firm Crystallex (KRZ on Amex) are affected by this announcement. Bad news for the shareholders of these companies, unless some dramatic reversal takes place in the Government's stance.
We saw this with Yukos last year. Yukos was a major oil producer in Russia, and the Russian Government, in it's zeal to punish Mikhail Khodorkovsky, the infamous boss of Yukos, basically obliterated billions of shareholder wealth of innocent shareholders as well. The stock was $60 before it collapsed, it trades at $7 now. See chart and more info here. A major part of Yokos was taken over by the Government in the name of Back-taxes. Yukos is battling the Russian Government still on this-lawsuits in the US, Europe (including Russia) are still ongoing, with no clear end in sight. A nightmare for investors. And this too when the Oil sector is on a strong rebound! Imagine how you feel if you bought Yukos at $50 and are watching those shares trade at $7 (having gone down to $2!) , while everyone else has been minting money on Oil shares the last two years.
Mining, Oil and Basic Material industries suffer this risk of being at the mercy of Governments. Investing in these industries therefore should always be very well diversified-that's why I like funds like ASA, and can't wait for a pure Gold stock ETF to be launched. Or just own the Bullion by buying shares of GLD (GLD is the shares which tracks the Bullion Price. It is the same as owning Physical Gold for all practical purposes). You never know when some mad Goverment or dictator would put a company out of business; but with an index share, you don't have that problem to deal with.
Sanjay John G.
This guy is crazy. He has ruined Venezuela, the state controls everything now. But I am no politician, I am interested in the financial aspect of all this (although I do feel bad for the wonderful people of Venezuela. I visited Venezuela in 2001, before Chavez started his craziness-and it was just a happy and merry-go people country, I thought. Not anymore...). US based Hecla (stock symbol HL on the New York Stock Exchange) and Gold Reserve Inc (GRZ on Amex) and Canadian firm Crystallex (KRZ on Amex) are affected by this announcement. Bad news for the shareholders of these companies, unless some dramatic reversal takes place in the Government's stance.
We saw this with Yukos last year. Yukos was a major oil producer in Russia, and the Russian Government, in it's zeal to punish Mikhail Khodorkovsky, the infamous boss of Yukos, basically obliterated billions of shareholder wealth of innocent shareholders as well. The stock was $60 before it collapsed, it trades at $7 now. See chart and more info here. A major part of Yokos was taken over by the Government in the name of Back-taxes. Yukos is battling the Russian Government still on this-lawsuits in the US, Europe (including Russia) are still ongoing, with no clear end in sight. A nightmare for investors. And this too when the Oil sector is on a strong rebound! Imagine how you feel if you bought Yukos at $50 and are watching those shares trade at $7 (having gone down to $2!) , while everyone else has been minting money on Oil shares the last two years.
Mining, Oil and Basic Material industries suffer this risk of being at the mercy of Governments. Investing in these industries therefore should always be very well diversified-that's why I like funds like ASA, and can't wait for a pure Gold stock ETF to be launched. Or just own the Bullion by buying shares of GLD (GLD is the shares which tracks the Bullion Price. It is the same as owning Physical Gold for all practical purposes). You never know when some mad Goverment or dictator would put a company out of business; but with an index share, you don't have that problem to deal with.
Sanjay John G.
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