Tana Goldfields Mining Topix: Losing Faith in Gold

Vancouver is home to more than 700 mining companies scattered among high-rises framed against the stunning North Shore mountains.

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Miners’ Woes | They’re often small, employing a handful of people who then hire auditors, engineers or helicopter pilots to reach remote sites. Many are struggling to survive. The median Vancouver mine exploration company has $325,000, enough to last less than five months, according to data compiled by Bloomberg. Jeff Sundar, 38, cut his monthly salary by more than half, to C$5,000, last year to stretch the cash of his Vancouver explorer, Entourage Metals Ltd. (EMT) Its stock has dropped more than 80 percent since it raised C$5.35 million in a February 2011 initial public offering. The firm had four full-time geologists at the time; now it has one.

Gold news: goldfields project and investment scam alert

Financing Challenge | In April, Toronto brokerage Fraser Mackenzie Ltd. shut, saying investor interest in early-stage mining had “considerably diminished” and shareholders voted to conserve capital “while we still have it.” The firm had employed as many as 80 people. There were rows of empty seats at a Vancouver mining conference in May. Half as many exhibitors as a year before came, said conference organizer Joe Martin. “No Soliciting” signs were posted on tables to discourage salespeople who hadn’t paid from showing up anyway. In one hall, David Hodge, president of Zimtu (ZC) Capital Corp., bellowed about an early-stage exploration company like a carnival barker.

ETF Panic | Stock in Zimtu, a Vancouver-based natural resources investment company, traded Aug. 12 at 37 Canadian cents, less than a fifth of the C$2.19 price in February 2011. The ease of buying gold through exchange-traded funds backfired on some investors. One couple who put more than half of their assets into gold ETFs approached Rinehart Wealth Management in a panic in April, said Daniele Donahoe, president of the Charlotte, North Carolina-based firm, whose clients generally have more than $1 million. She said she sold many of the funds for the couple. “With the advent of these ETFs people have been able to become somewhat of their own worst enemy,” Donahoe said.

Billionaire Paulson had so much conviction that he used a gold ETF (GLD) to start share classes for his funds denominated in bullion, allowing investors to avoid the dollar. Most of his own $9.5 billion investment in his firm’s funds as of Jan. 1 was in the gold shares. Today, Paulson & Co. reported in a filing that it reduced holdings of the SPDR Gold Trust, the largest gold ETF, by 53 percent in the second quarter as the metal plunged into a bear market.

Demand Intact | The firm has said the gold share class is still “up considerably” since beginning at an average cost of $950 an ounce in 2009, and it remains committed to bullion. “The long-term trend of increasing demand for gold in lieu of paper is intact,” John Reade, Paulson’s gold strategist, said in an April statement.

The metal is also weighing on returns at Utimco, the $29.2 billion fund for the University of Texas and Texas A&M University systems. Utimco began buying gold as a hedge against dollar devaluation in 2009 and by 2011 held more than 20 metric tons -- larger than Canada’s gold reserve -- in a New York warehouse. The investment became a political weather vane in the state, where one legislator proposed a bill to move the gold to a newly created Texas Bullion Depository.

Assets Devalued | While gold helped the endowment gain more than 14 percent in fiscal 2011, it’s since been a drag. Returns were 9 percent in the fiscal year through May 31. “What I missed was how emotional so many people tend to get on this topic,” said Bruce Zimmerman, the fund’s chief executive officer, a former Citigroup Inc. pension manager who had never owned gold before.