Is Facebook Worth Its Weight in Gold?

Gold Industry Market Cap Relative To Other Companies, OCM Gold Fund, Feb 27 2014 Presentation

The entire gold mining industries market capitalization compared to large tech firms.

California’s $80 million OCM Gold Fund produced the chart for a presentation at a Denver Gold Group industry forum last week in New York, entitled “Gold Equity Investing for Value Seekers and Contrarians.”

The presentation, which pitched unpopular gold mining equities, comes amid recent calls by some investors that gold miners’ shares represent an attractive bargain, especially if gold reverses its dismal 2013 performance.

“A little bit of money moving into the sector out of other sectors would have a significant impact on the market cap of the whole industry,” OCM Gold Fund portfolio manager Greg Orrell told IBTimes. “The gold industry overall has become quite insignificant in some ways.”

“For what Facebook was paying for WhatsApp, you could buy the entire South African gold sector, plus throw in North America and all the [gold] reserves and all the capital that went with it,” Orrell added.

Orrell wasn’t the only one circulating charts comparing Facebook and gold miners at the industry conference, according to another participant at the event. At least three speakers made similar comparisons. Some compared the $40 per user Facebook paid for WhatsApp to the $50 you’d pay for precious metals ounces still in the ground among junior miners.

Orrell sees more upside for gold mining shares relative to gold itself. Choosing to bet on precious metals by investing in mining companies versus the actual metals is a perennial and popular debate in the sector.

“Do I like the shares more than the physical metal right now? You know, I tend to lean in that direction right now,” Orrell said. “If you have a view that the gold price is going down, that’s not going to give you a warm and fuzzy feeling that gold shares are going to outperform gold.”

“But even in a relatively stable gold price environment, there’s room for gold shares to appreciate, as companies address these issues they’d stumbled over previously,” he added.

Corporate governance problems and high capital budgets, along with little consideration shown to shareholders, plagued the gold mining industry over a decade-long boom of gold prices. Gold equities have fallen steeply in the past years, since about 2011, and have done worse than gold itself.

Original Article from International Business Times