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It’s the largest gold mine in the world (containing over 106 million ounces)… the world’s third-largest copper mine… and it’s the most profitable single mine on the planet.
The Grasberg mine is one of the great monuments to human ingenuity. It sits atop mountains over 14,000 feet high on an island in Indonesia.
Mining giant Freeport-McMoRan owns the Grasberg mine. Freeport is one of the largest miners in the world. If copper were soda, Freeport would be the “Coca-Cola of mining companies.”
You might think the mine’s owners would be set for life… but you’d be mistaken.
Continuing weakness in metals prices have put the company on the defensive. Last month, the company announced it was slashing its dividend.
Shares plummeted after the news came out. They’ve sunk to lows not seen since the pit of the financial crisis in 2009.
Major Miner Freeport-McMoRan Gets Pummeled
The last time shares were this cheap, gold cost $939 per ounce. But today, gold trades for just under $1,200 per ounce. That means its product sells for almost 30% more than before, but shares are still hovering near the basement.
Investors’ pessimism on the sector could be nearing an extreme low… setting up a potential rocket back to the upside.
But we have no idea if or when that will happen. Shares could drop even lower. We don’t have a crystal ball. And at PBRG, we don’t need one…
Resource stocks enjoy the most spectacular booms and gut-wrenching busts of any sector.
That’s because no matter how large and powerful a mining company may be, it lacks this fundamental quality of a world-class business: It has zero pricing power over its product.
Copper and gold trade at whatever the market will bear, nothing more.
That’s why you’ll never see a gold miner recommended in our flagship advisory, The Palm Beach Letter. Instead of investing in “the Coca-Cola of mining companies”… we’d rather just invest in Coca-Cola itself (at the right valuation).
Coke makes a product so popular, if costs increase today, the company can raise prices to compensate tomorrow. People will continue to buy their favorite soft drink. This ensures Coke’s profitability… and ever-increasing dividend streams. That’s security even the epic Grasberg mine can’t provide…
There are better ways to capitalize on gold rushes (both literal and figurative). In our next item, Mark explains how…
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Reeves’ Note: There’s no doubt catching a resource boom at the right time can lead to extraordinary gains… 1,000%-plus gains are not unusual. If you’re hooked on the idea of resource speculation, don’t do it alone. The Vancouver Natural Resource Symposium is a veritable “all-star team” of natural resource experts you may want to turn to… |
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