IT was interesting to read earlier this month that Australia’s largest gold miner, Newcrest, has received a takeover offer from the USA’s largest gold miner, Newmont.

If the offer is accepted by shareholders and government approval follows, the joint company will be the world’s largest gold miner.

This is all happening at a time when the price of the precious metal has reached its all-time high of over US$2000 per ounce.

This immediately raises the question of why you would buy anything at the top of the market.
Gold is not in the same position as Sydney waterfront real estate, where that seems to be happening on a regular basis, but on the premise of large demand for small supply.

We are all aware of one family buying two eastern suburbs houses for over A$100 million each.

However, gold is mined in many locations and often as a free result when mining for copper as the minerals are frequently found together.

The USA miner Newmont is headquartered in Denver, Colorado; not far from where I go fishing on the Colorado River, but on the Utah side of the border.

The President of the American company Newmont is Australian born, which I’m sure will make the employees of Newcrest feel a lot more comfortable about their future.

Newmont has an existing mine in Western Australia at Boddington and the Tanami mine in Northern Territory.

So, on the face of it, consolidation of the two big miners could prove to be a neat fit.

Together the enlarged company is expected to produce some eight million ounces of gold each year and is also looking to increase its production of copper, silver, zinc and lead.

As we know copper will be needed in vastly greater quantities in order to build renewable energy infrastructure and for electric vehicles.

They are talking about producing 350 million pounds of copper each year too, all of which values the Aussie company at $26 billion.

If you include the dividend Newcrest wants to pay its shareholders before the takeover goes through, that value increases to nearly A$29 billion.

An eye watering sum no matter how you look at it.

It will be interesting to see how elements of the Australian Government will approach the sale of our biggest gold miner.

We all remember the community resistance to the sale of Australia’s largest dairy farm in Tasmania to a company associated with the Chinese Communist government and how that played out.

The present price of gold still amazes me as I can clearly remember when the value of gold had its price fixed at US$40 an ounce.

This base rate was used to value other countries’ currencies when we all operated on the gold standard.

Because gold doesn’t produce any income a number of nations decided to liquidate their gold reserves and use the cash to bolster their economies. Eventually we had just the Swiss currency as the only one fully backed by gold and even now they have moved to the Euro.

Switzerland is held in the highest esteem as having the best money managers in the world.

Its neutral status also helps.

I am sure that a number of people will be thinking about the question I put earlier, that of why would you buy at the top of the market.

Maybe it will go higher, they say.

Others might suggest that because gold is seen everywhere as a repository of wealth when people get nervous of economies being overvalued and may well adjust downwards in hard times, as gold holds its value it can be readily converted into any other currency.

The safest way that you can protect your assets is by converting them to gold, but in the knowledge that it doesn’t pay any income unless you sell it at a higher price than you paid for it.
It is likely that the present outlook for many world economies is that they may well fall into recession.

If that happens then the gold buffs will have made the right decision, be able to ride out the downturn safely and come out looking like geniuses when things settle and they reconvert their gold into currency.

With gold at the present high price, it’s a big guys game to be involved with.

By John BLACKBOURN