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Stockwatch: Global Mining Investments (GMI)

March 24th, 2009 · Greg Atkinson · 5 Comments

The problem with picking which mining stock to invest in is that you really need to know something about mining or you need to be getting advice from someone that does. Unfortunately most of the analysts out there covering companies like BHP and RIO do not have any qualifications in disciplines such as mining engineering or geology, and for me that is like having a stock broker tick-off the pre-flight checklist on an aircraft I am just about to fly in. He might be a smart guy, but personally I would prefer someone who knows about aeroplanes up in the cockpit thanks.

“A good man always knows his limitations” said Harry Callahan in Magum Force, and although I am not suggesting I am a good man, I do at times know my limitations. One of the areas that I swallow my pride and admit I am in the dark is when in comes to mining companies. Yes I can look at the company financials, balance sheets etc. and make sense some sense out of them (sometimes) but when I start reading the mining reports I start to lose my way. 

Normally if I get into trouble when trying to understand a company I would start digging into the various research and analysts reports but more often and not, these are written up by people with economics and business degrees. These analysts might be able to crunch numbers but they probably know less than I do about the nuts and bolts of mining.

A while back I foolishly followed a mining stock tip from one of those investor newsletters/websites that I had signed up for and not long after I found myself holding shares in a gold mining company that was going under, while at the same time gold prices was steadily rising. How could this happen I thought?  The reason was that although the stock buy recommendation was from a team of “value investors” who had crunched the numbers and thought they has spotted a winner, they really did not understand mining and the company they suggested simply did not have quality mining operations.

After that little experience I decided to look for a way to invest in mining while at the same time try and make sure I was diversified a little, because even good mining companies can get into trouble. Mining is a risky business and even a great mining company can get into strife if mines flood, shafts collapse or they cause environmental problems etc. After some research I found what I was looking for; a Listed Investment Company (LIC) that manages a portfolio of mining stocks spread across the world and across various commodities types. That company was Global Mining Investments Limited. (ASX.GMI)

At this point I should stress that I have an interest in a portfolio that contains GMI shares and that I am seriously looking at picking up some more GMI shares for this portfolio. So please keep this in mind and remember I am just highlighting this stock in order for people to do their own research if they wish, I am not suggesting anyone buy GMI stock.

According to the company’s website the main benefits to investors from investing in GMI is access to:

  • a globally diversified approach to investing in resources;
  • commodities, geographic regions and companies that are not available through investing only on the ASX
  • listed and pre-IPO resource companies; and
  • the investment management expertise of the natural resources team at BlackRock Investment Management (UK) Limited, based out of London.

For me the attraction of GMI was being able to invest into a mining focused portfolio that included stocks not traded on the ASX. In addition the portfolio of stocks is managed by a team at BlackRock Investment Management in the U.K and within this team are people who hold degrees in mining geology and mineral exploration.

As of 31st January 2009 the top 10 investments in the portfolio were:

BHP Billiton Limited
Impala Platinum Holdings Ltd
Newcrest Mining
African Rainbow Minerals
Anglo American Plc
GV Gold
Minas Buenaventura
Rio Tinto
Eramet Sln

As you can see, the portfolio of mining stocks they manage is spread across the globe and includes a few gold miners for all you gold bugs out there.

Of course mining stocks have not escaped the stock market plunges of the past year as the chart below shows GMI has been sliding downhill from around mid 2008 when the commodities supercycle started to look not so super anymore.

Global Mining Investments (GMI) 2 Year Chart

(click on the chart for a larger view)

Now I doubt we are going to witness a spectacular rise in mining stocks across the board, but it seems to me having a basket of quality larger sized mining companies in a portfolio is probably not a bad investment option if you are investing for the long haul. You could of course in theory put a GMI like portfolio together yourself and save on the management fee, but this is a little tricky when many of the stocks do not trade on the ASX.

Anyway as always please do plenty of your own research and feel free to let me know your views on mining stocks and commodities in general. Maybe investing in commodities and miners is not a smart thing to be considering at the moment?

5 responses so far ↓

  • 1 8020 Financial // Mar 25, 2009 at 2:01 pm

    Hi Greg,

    I am not a buy and holder, but if I’d buy and hold anything it would be BHP, even though I consider it a high risk stock. By the way, I would suggest investing directly in the stocks themselves rather than through a LIC or managed fund – the middleman (the LIC or fund manager) always gets his cut with these vehicles. Various online brokers can give you access to most of the major financial markets for non-ASX stocks.

    If we see a genuine recovery I do think commodities will lead the way. I’m a big fan of Jim Rogers, former right-hand man of George Soros and author of ‘Hot Commodities’, who was a China/commodities bull years before it was fashionable, and remains so now even with the correction.

    But that recovery might be 5-10 years off, or even longer. But if you’re really willing to ride it out BHP and perhaps Newcrest would be good (if volatile) bets. Another option would be not to bother with the miners, and simply invest in the commodities themselves via futures contracts, but I guess that might be too scary for most people.

  • 2 Greg Atkinson // Mar 26, 2009 at 5:49 pm

    8020 I also watch what Jim Rogers has to say, I also like Marc Faber. BHP I think is a good quality mining stock (and I own some BHP shares) but I also feel GMI gives me access to companies that are simply not listed on the ASX. You are right about the middleman..someone is taking a slice of the action when you go via an LIC or managed fund.

    Hope the recent ASX rally is treating you well! Can we dream about cracking the 4000 level before the end of the financial year?

  • 3 J Perks // Apr 20, 2009 at 10:24 pm

    Re GMI, their half year report to 31 Dec 2008 (cash flow statement) indicates management and performance fees of approx $7.5m. Seems a huge amount for an LIC with market cap of $180m, and would put me off buying it, even though some of these fees may be “hangover “from the 2008 financial year. The discount to NTA is not enough in the face of such fees.

  • 4 Greg Atkinson // Apr 21, 2009 at 11:11 am

    Hi J Perks, I can only see $2 million in management and performance expenses for the half year. (page 10) The figure you mention from the cash flow statement would include (I hope) payments for FY0708 when things were ticking along well. You raise a good point though and I will look into it.

    The full year FY0708 management and performance fees from the annual report came to around $12 million and net assets were around $407 million so this is getting up into the 3% range as far as the MER in concerned. This is a touch on the high side in my view, but it was a bumper year so the performance fees kicked in. (I don’t think they will kick in this year)

    But like all the LIC’s you have to watch the MER as you rightly point out.

    Finally I am cautious about looking for LIC’s trading at a large discount to their NTA’s per share backing as often this valuation gap never seems to close 🙂

  • 5 Greg Atkinson // Apr 28, 2009 at 1:03 pm

    I have had a response from the GMI company secretary (Liesl Petterd) about the management and performance fees shown in the half yearly report (31 Dec 08)

    ” …the performance fee for the 12 months to June 08 of
    $4.8million (plus GST)(as disclosed in the 30 June 2008 Financial
    Statements) was paid during the 6 months to 31 December 08, and is
    therefore shown in the cashflow statement for the 6 months to 31
    December 08. The management fees for the quarters ending 30 June 08 and 30 Sept 08 were also paid during the 6 months to 31 December 08. ”

    I hope that clears things up.

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