Another Wealthy New Entrant Into Gold Investing...

...who's gotten himself into a bit of a spot. That investor is Greg Chamandy, the force behind Gildan Activewear. He plowed some of his considerable fortune, made as founder and former CEO of Gildan, into Quebec-based junior producer Richmont Mines. He currently has 19.3% ownership of Richmont.

As this Globe and Mail report says, Richmont hasn't been doing all that well lately due to growth-prospect concerns. Consequently, Chamandy is exploring opportunities to "enhance shareholder value." Although what he plans to do is unspecified, it's not going to be very good for Richmont's extant board.


What better cautionary tale than a business wunderkind in another line of business getting tangled up in a lackluster gold-mining company? As the story indicates, gold mining is not the same as gold itself: mining's a business, and the supposed leverage is not automatic. It may seem simplistic for me to say so, given producers' continual exploration efforts, but a gold mine is a wasting asset. The more value extracted, the more the asset is depleted.

This seems the best time to pass on the old boilerplate about exploration-level juniors: far less than 5% of all explored projects wind up as mines. What keeps the stock price of exploration juniors with all-but proven minable deposits so low, is the financing barrier. Financing is hard to get nowadays, except for "elephant" deposits in stable pro-mining jurisdictions. That's why many properties are passed from junior to junior to junior.


Update: Subject to shareholder approval, Chamandy is now the executive chairman of the board. That's what owning nearly 20% of a company, plus a track record of building and growing another company, can get you. Despite earlier speculations, Chamandy's new plan isn't to sell off Richmont or its assets: it's to grow the company, perhaps with acquisitions. Takeover rumors might be swirling in the gold-junior arena as a result.


Digressionary Update: While I'm on the subject of company risk, here's another item to consider: another junior producer, one-mine Kirkland Lake Gold, reported a wider loss in the latest quarter despite the recent rise in gold. A borehole in its Macassa mine collapsed, leaving its deposit inaccessible for three months. Most prodution crews had to be diverted to upgrading work. Kirkland's stock has more than doubled since its January low, although almost all that gain was yielded in the early part of this year. It's been in a trading range since May. Anyone who bought the stock as of June 30th would be sitting on a slight loss right now. Gold itself has gone up about 18% in that same timeframe.