Wednesday, March 18, 2009

John Paulson Buys a Stake in a Gold Miner

Huge success shorting mortgage backed securities made Hedge Fund Manager John Paulson famous and closely watched. Gold is widely seen as a safe haven for investors in times of financial crisis. Rather than buying gold, Marc Faber recommends and John Paulson buys gold miners. As inflation rises, so can the gold production output, keeping the gold price within certain limits. The rise in the gold production will benefit gold miners.

Mining group Anglo American said on Tuesday it had sold its remaining 11.3 percent stake in South Africa's AngloGold Ashanti for around $1.3 billion (926 million pounds).

The company, which said last month it had scrapped its final dividend and would cut 19,000 jobs in a bid to conserve cash, said in a statement the cash would go towards "general corporate purposes."

Anglo has been gradually cutting back its investment in Ashanti, and now owns no shares in the gold miner.

The latest tranche was sold to investment funds managed by U.S. group Paulson & Co, run by renowned hedge fund manager John Paulson.

Paulson made billions of dollars for himself and clients betting against sub-prime mortgages in 2007.

"We're extremely pleased that someone with John Paulson's track record and reputation has chosen AngloGold Ashanti as one of his investments through which to increase his exposure to the gold market," Ashanti CEO Mark Cutifani said in a statement.

Paulson also owns a 4.1 percent stake in Kinross Gold Corp., making the hedge fund the fourth-largest holder of the gold producer. Paulson is also the second-largest shareholder in chemical-producer Rohm & Haas Co. and has holdings in Cheniere Energy Inc.

Paulson, 53, manages about $30 billion. His Credit Opportunities Fund soared almost sixfold in 2007 on bets that subprime mortgages would plummet. Last year, his flagship fund returned 37 percent, compared with a loss of 19 percent for hedge funds on average.

The firm may have made 311 million pounds ($428 million) since September by betting against the shares of Lloyds Banking Group Plc and HBOS Plc, according to regulatory filings last week.

Gold prices have risen 3.7 percent this year compared with a 15 percent decline in the Standard & Poor’s 500 Index of the largest U.S. companies. Gold futures for April delivery fell $5.30, or 0.6 percent, to $916.70 an ounce at 3:20 p.m. on the New York Mercantile Exchange’s Comex division.

“Hard currency is coming to the fore, as evidenced by the investment choices of some of the world’s most seasoned investors,” AngloGold Ashanti Chief Executive Officer Mark Cutifani said today in an e-mailed statement.

AngloGold’s American depositary receipts, each representing one ordinary share, rose 57 cents, or 1.7 percent, to $34.27 at 3:20 p.m. in New York Stock Exchange trading. The shares have gained 24 percent this year.

AngloGold, the fourth-biggest diversified mining company, dropped 37 pence, or 3.2 percent, to 1,116 pence in London trading.

Anglo, founded in 1917 to mine the world’s biggest gold field, said in 2005 it would give up control of the gold business that helped build the Oppenheimer family’s fortune and concentrate on copper and iron ore.

It has reduced its stake from 51 percent since then, and has also spun off paper and steel units. Anglo said last month it sold 10.4 million AngloGold shares for about $280 million.

AngloGold is reducing contractual commitments to sell gold at fixed prices so as to secure more room to benefit from earning spot-market prices.

The gold producer, whose biggest mines are in South Africa, also is benefiting from declines by the rand because it pays most of its costs in the currency and sells gold for dollars.

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