Oxstones Investment Club™The extreme recent moves in the price of gold have given investors whiplash. Gold fell in April from $1,599 an ounce to $1,348, before rebounding to a recent $1,470. Not surprisingly, this market upheaval has hit companies that mine for gold particularly hard, with shares in companies like Barrick Gold and Kinross Gold getting hammered and then bouncing back a little.
But no gold stock has traded quite like Gabriel Resources, a company listed on the Toronto Stock Exchange that is trying to develop a gold mine in Romania in which it owns a majority stake. When gold experienced its massive sell-off over two trading days in mid April, Gabriel’s stock fell by more than 35%, which included a 29% drop in a single day to C$1.39 per share. Then this past Friday, shares of Gabriel staged a stunning comeback, rising 29% in another remarkable day of trading. After falling 2% on Monday, shares of Gabriel were trading hands for C$1.68, compared to C$2.15 on April 11th.
The volatility of this small gold stock has a disproportionate impact on the investment world because of its very high profile backers. Three prominent billionaire investors have for years held big stakes in Gabriel. John Paulson, the hedge fund manager who pulled off the greatest trade ever betting against subprime mortgage securities, is the largest owner of Gabriel, owning a 16% stake through his hedge funds. Seth Klarman, the most revered value investor of is his generation, owns a 13% stake through his Baupost hedge fund. And Thomas Kaplan, the billionaire New York investor, personally owns a 15% stake in Gabriel through his Electrum Strategic Holdings.
Even after the recent rebounded, Gabriel’s stock is still down 27% in 2013. That means, for example, that Paulson’s Gabriel shares are now worth some $100 million, representing about $30 million in paper losses in 2013. Those paper losses had reached $60 million or so only days ago. All three of these big investors, Paulson, Klarman and Kaplan, are still above water on their investment since they first started accumulating shares in Gabriel a few years ago, when the stock was even cheaper than it’s now.
Still, it’s hard not to notice when a single stock holding tumbles by 29% in a single day. For many years Gabriel has tried to develop the Rosia Montana gold project, spending more than $400 million, but has been thwarted by environmental concerns over the plan to use cyanide to develop an open cast gold mine. The recent volatility in the price of gold wasn’t the only negative news impacting the effort as an environmental permit is now being slowed because Romania is demanding extra financial guarantees. But Paulson, Klarman and Kaplan have proven to be patient long-term investors.
http://www.forbes.com/sites/nathanvardi/2013/04/29/the-romanian-gold-mine-bending-billionaire-investment-portfolios/
Tags: Barrick Gold, environmental permit, Gabriel Resources, John Paulson, Kinross Gold, price of gold, romania, Rosia Montana gold project, Seth Klarman, Thomas Kaplan