Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Thursday, March 22, 2007

Stray Conversations with Dominicans

Before dinner I wandered the streets of Santo Domingo a bit. I asked people about the Pueblo Viejo mine, which I wrote about in Wednesday's Money and Markets. It's a formerly huge past-producing mine, owned by Barrick and Goldcorp, near the mine that I’m visiting today. My unscientific sample expressed disappointment that the mine hadn’t started up again yet. Placer Dome bought it years ago. It has known reserves. Why isn’t it producing gold and silver now? These people want those jobs.

Why indeed. I think the simple reason is taxes. Unlike the mine I’m going to go visit, which is enjoying a 20-year tax holiday and is in an economic enterprise zone to boot, when Placer Dome signed the deal for Pueblo Viejo, they agreed to pay taxes out the ying-yang. So why did Placer Dome agree to that kind of deal? Well, you may remember that Placer Dome had a HUGE hedge book in its day. “Hedging” is when a company sells forward its gold production. I don’t have the exact figures in front of me, but Placer Dome’s hedge book was enormous.

But then they were able to pick up Pueblo Viejo for $20 million, and while it has 7.3 million ounces of gold in proven reserves, it has measured and inferred reserves (including proven) of about 20 million ounces. So, basically, Placer Dome picked up gold at a buck an ounce to balance out its hedge book. But because of all the taxes and the spiraling costs of mining, if it mined the gold, it would actually lose money on the deal.

So now we have a new owner in Barrick. I think they’re looking for a new deal. The Dominican Republic has national elections in 2008 – I wouldn’t be surprised to see a smart politician coming up with a deal for thousands of new jobs before then.

So I had dinner last night. It was delayed until 8 pm, as we waited for some guests to straggle in. The last guy arrived at 8:45 (he had been on one plane or another for 24 hours) and this was dinner in the Dominican Republic, which means it comes VE-E-E-E-ERY SLOWLY. I think they must have had two burners back in the Hilton kitchen, that’s it, because they would bring out two or three plates, then we’d wait 10 minutes, then two more plates would come out, then another 10 minutes … It took an hour for all the food to arrive! So we don’t eat until 10:30, and I am STARVING, having stared at my food for 20 minutes without eating it. And I like to be in bed by 10:30. I was falling asleep over my chicken.

All that said, it was an interesting meal. I think we’re going to see very interesting things today. I just hope the weather holds out. I have to go catch a helicopter. I’ll try to write later, but it’s going to be a long day.

I know that positions are lifting off the launch pad in both Red-Hot Canadian Small Caps and Red-Hot Asian Tigers. I’ll cover those next week for sure. It’s all good news.


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