However I got a lot of feedback on the part where Cook commented on Rusoro Mining (RML.v) as he said the company was connected with Russian mafia. Well I laughed about it over my Saturday coffee and then mailed Brent Cook to say that I think he got that one wrong. From what I hear, other people with greater gravitas than I also thought it was a bit heavy. So it was impressive to see Brent Cook stand up yesterday and say “hey guys, I was wrong”. In a world of overstuffed egos, kudos is again deserved by Cook for having the fortitude to admit his mistake publicly. I’ve been given permission to reproduce the extract from his letter to clients yesterday and here it is.
Before moving on to this week’s belated letter I need to rectify a statement I made on Friday’s BNN Market Call Tonight show regarding Rusoro Mining (RML.TSX)
To the best of my knowledge, there is no Russian mafia involvement or connection with Rusoro: I was wrong. According to the most recent information circular, the significant Russian shareholders in Rusoro are Andre Agapov (8.9 million shares), Vladimir Agapov (59 million shares) and Peter Hambro (~6.1 million shares). These are legitimate businessmen and companies.
In retrospect, had my foot not been so much quicker than my mind, this is what I should have said regarding why we are not invested in Rusoro:
Although Rusoro is an obviously undervalued gold company with measured and indicated resources of about seven million ounces and another seven million in the inferred category, I do not see a clear way forward that benefits shareholders: i.e. takes the share price up. There are too many variables and risks that are beyond our ability to understand and predict in Venezuela. This uncertainty is a very strong headwind that I believe will keep outside investors from re-rating the company for quite some time. An investment in Rusoro implicitly assumes that you trust the Venezuelan government (Hugo Chavez at the moment) to play fair with shareholders.
Venezuela has been, shall we say, less than fair in their appropriation of natural resources. In 2007 they nationalized the last foreign company’s participation in an oil field. In the mining sector, Gold Fields and Hecla experienced sufficient national and local government impediments and bureaucracy at their gold projects to convince them it was best to leave. Their departure benefited Rusoro who legally acquired the Choco deposits from Gold Fields and, Isidora from Hecla. RML has subsequently been able to work through the issues and turn those operations around. Rusoro is now the “company of choice” for the Venezuelan government, as evidenced by their joint venture on the Isidora mine.
Elsewhere in Venezuela, Crystallex (a 26-cent stock with reserves of 16.8 million ounces of gold) was denied a mining permit and is awaiting an appeal. Gold Reserve, the other foreign mining company operating in Venezuela, is contesting the revocation of a key permit by the government on their Las Brisas gold deposit. Both companies are effectively dead in the water at the hands of the government.
UPDATE: for those of you tuning in from V-Headline, please be clear that Roy Carson is a two-faced lying dickhead of the first order.