Despite lackluster gold prices, billionaire investor George Soros is holding steady on his bet that the yellow metal will rise again. Gold has dropped significantly in the face of incessant money printing by the Federal Reserve, which also inflated a stock market “recovery.” Soros is cleverly hedging against an economic collapse by going long on Barrick Gold Corporation (NYSE:ABX).
Soros is a mythical figure of financial markets. After spending his early childhood escaping from Nazi Germany, he found himself in London, studying philosophy under Karl Popper. He finished a PhD thesis at the London School of Economics, but couldn’t find work after completing his education. Eventually, Soros found his way to finance, paving the way for a legendary investment career.
After setting up his own fund in 1970, Soros made a ton of money for investors. His notoriety grew exponentially when, in 1992, he took a $10.0 billion bet against the Pound Sterling. Soros made $1.0 billion on that single trade, earning him the moniker, “The Man Who Broke the Bank of England.”
Soros Holds Steady on Gold Investment
Gold prices have plummeted more than 40% since peaking near $1,900 in mid 2011. The yellow metal now hovers around $1,118 per ounce; a dangerously low price for many gold miners. For instance, Barrick’s all-in sustaining cost per ounce was $895.00 for the second quarter, and the company expects that number to end up between $840.00 and $880.00 for the year. (Source: Barrick Second Quarter Report, August 5, 2015.)
Many of the smaller miners who don’t have deep enough pockets will get wiped out during the price slump. Supply contractions will likely spark a resurgence in gold. And George Soros knows that. The 13-F filings for Soros Fund Management reveals that the billionaire fund hasn’t sold any of its $13.5 million stakes in the Market Vectors Gold Miners ETF (NYSEAcra:GDX), an ETF for the gold mining industry. (Source: Soros Management Fund 13-F Filing, June 30, 2015.)
Not only did Soros hold his ground on gold, but he actually added to his bullish stance. The filings revealed that his fund accrued 1.9 million shares of Barrick Gold, for which it paid $20.1 million. The approval of a big name investor like Soros is a big win for Barrick, which has been in turnaround since John Thornton became CEO.
Barrick Gold Turnaround Brings in Soros Investment
Thornton is an outsider to the mining industry, but his years in the upper echelons of The Goldman Sachs Group, Inc. (NYSE:GS) makes him the right guy to whip Barrick into shape. He has a huge rolodex at his disposal, and is a master of operational efficiency.
Under the guidance of founder Peter Munk, Barrick became overburdened and overstretched. Munk wanted an international firm with global aspirations, so he borrowed a lot of money on frivolous acquisitions. Two of the bigger purchases, a copper mine in Zambia and a gold mine on the border of Chile and Argentina, cost the company $15.9 billion. (Source: Canadian Business, July 3, 2015.)
During Munk’s tenure, the firm racked up $13.0 billion in debt. Thornton has started selling off non-core assets to pay down the debt. The firm has already dedicated $850 million towards repayment, with another $3.0 billion ready to go before 2016.
There was a slight hiccup in April when investors overwhelmingly rejected Thornton’s compensation package. He’s been great for the firm, but no one thought he deserved $12.9 billion in a year that Barrick shares posted a double-digit decline. Especially since he’d already taken an $11.9 million signing bonus the year before.
Nonetheless, there’s no denying that Barrick is on the mend. Thornton has rebuilt the firm to survive today’s treacherous market, cutting layers of middle management and giving autonomy back to local mine managers. He doesn’t care about grandiose visions like Peter Munk; he just wants to trim the fat.
Are Gold Prices About to Hit $5,000?
Not everyone is George Soros. Many of us can’t afford to put all our eggs in a single basket, so we need to know all our options. Gold has consistently provided investors with a safe haven from economic turmoil, and there’s plenty of that ahead.
Here at Profit Confidential, our analysts have put together a special FREE report. You can find the full story here: “Gold: The Stock Contrarian Investors’ Best Play of the Decade.”