"When the facts change, I change my mind. What do you do, Sir?"
(widely attributed to John Maynard Keynes).
There is some doubt as to whether Keynes actually uttered those widely quoted words. Yet even if apocryphal they are a useful maxim for investors to act upon.
A recent example of this came on Wednesday 27th February 2019. At lunchtime when monitoring the London Stock Exchange RNS announcements I came across this rather alarming note from one of my investments, the Zimbabwe-based gold miner Caledonia Mining, announcing a shift in government policy, the ending of a tax credit, and summarising its deleterious effects on the company's earnings per share.
Such a sharp and sudden deterioration in the company's prospects merited an immediate sale, albeit one undertaken reluctantly, as Caledonia was one of my first stock-picks in my progression since 2015/6 to investment-funded early retirement in 2017. Although in retrospect a sale in May 2018 at over £7.00 would have been optimal, having invested in spring 2016 I still emerged with a capital profit of 25% and three years of significant dividends.
Even though the share price recovered the next day, the potential for a future dividend cut, possible postponement of their mine expansion plan (neither of which have been announced, but are surely on the cards) and the ongoing economic and political problems in Zimbabwe weakened the long-term investment case.
So, in search of alternative dividend-paying exposure to gold, where have I reallocated the funds?
From Gwanda to Kamchatka
A search for credible dividend-paying gold miners generates a few alternatives, and besides adding to an existing holding in Highland Gold Mining, I've alighted upon Trans-Siberian Gold. Whilst fully cognisant of the risks of investing in that paragon of stability and virtue that is Putin's Russia (!), the value of investing in gold far away from Wall Street and London was demonstrated during global equity markets' difficult period in late 2018.
From 3rd September 2018 to 3rd January 2019 the Highland Gold share price rose by 12% from £1.35 to £1.51 (and declared 11p of dividends in the meantime). In the same period the MSCI World Index (in $ terms) fell by 15%. So pace Warren Buffett, (see page 14 of his latest Berkshire Hathaway annual letter) gold can be a useful diversifier.
With regard to Trans-Siberian Gold itself, although I'm too too late for this year's generous special dividend, the company has invested to improve the grading of the gold being mined, is expanding production to 40,000-44,000 oz. in 2019, has a low cash cost per oz., and reported 2018 full-year revenue up by 38%.
The recent share-price rise on that January 2019 announcement makes TSG less of a bargain than Caledonia was in early 2016 (at that point Caledonia yielded about 8% with a single-digit PE) but I wouldn't want my gold mining exposure exclusively based on Highland Gold.
In any event these two gold miners together account for just over 4% of my portfolio.
It will be interesting to see how TSG fares in the spring Q1 production and early summer results announcements.
Footnote: Michael Mauboussin on Market Inefficiencies
Just after finishing this post I discovered a recent paper on informational and behavioural inefficiencies in financial markets by the estimable Michael Mauboussin.
Who is on the Other Side? (2019) is well worth the effort.
