A couple of regular readers have mailed me this morning to ask views on how the Ecuador bonds default will affect the nascent mining industry there, especially concerning Dynasty Metals (DMM.to).
Let’s make this as snappy as possible, so here are a few bullet points:
- I’m long DMM.to and I’m not going to sell on this news. No way.
- This is because the approval of the new mining law has a far greater significance to the industry and to DMM than the wider issues that the default brings up. The new law should be through the Congresillo by the end of December, or perhaps January, but it’s close enough for our purposes. When the law is approved and miners such as Dynasty can get back to work the question of the bonds default will suddenly be on the back seat around Bay St. Also, the price of gold is a more important piece of the puzzle over time.
- However, don’t be naive about this. This cannot be good news over the short-term for anything concerning Ecuador. If the stock sells off today/this week it won’t come as much of a shock chez Otto. It won’t make me sell, either. In fact, if the price is right I’ll be looking to add. But I repeat, don’t fall into the trap of mentally spinning things to the way you want them to be. The train of thought that “Correa will lose power so therefore buy Ecuador now!!!!” is wrong. Let the story unfold the way that it will.
- Over the long term, things such as a change of government are possible. This would likely move Ecuador back to the corrupt samo samo oligarchy that the wider world considers miner-friendly. As mentioned in the previous post, that might suck but it’s kapitalism, baby.
DMM.to is the only position I have left in my trading portfolio, the rest being cash. This allows me to be patient as I’m not under any pressure whatsoever from this wild and crazy 2008 stock market. It’s the whole point of capital preservation, in fact. DYODD, dude.