Fuel costs removed from inflation data



By Thom Calandra
Thursday, March 3, 2000

This is a gold story. A South African gold story.

In an age when everyone in the world wants to own --
pick one -- biotech stocks, semiconductors, or IPOs --
one very large gold company is betting big on an old-
world currency, and making a bold call on the price of
the languishing metal.

Chris Thompson is the chairman of Gold Fields, the
second-largest gold producer in the world. The stock
(GOLD) trades on Nasdaq. And for the past six months,
Gold Fields shares have performed better than the
company's North American counterparts -- Newmont
Mining, Barrick Gold, and Placer Dome.

That's not saying much. Gold prices are depressed for a
lot of reasons: central bank selling, a lack of serious
inflation, and the fact that no one wants to buy gold
as an investment when they can double their money in
eight weeks on a hot tech stock.

But Thompson, whom I contacted from London, says gold
will get its day in the sun. "Some sort of collapse in
the equity market is what is going to be the catalyst
for gold," Thompson says boldly. "We have had a secular
trend, paper assets going up and hard assets going
down, and that can't continue."

Thompson, a 52-year-old Canadian, took over the
leadership of Gold Fields 18 month ago. It's his job to
talk up the price of gold. But even for an unabashed
gold bug, Thompson is making sure everyone knows where
he stands on the metal's coming fortune.

Gold Fields has eliminated nearly all of its forward
hedging of gold. The company, which produces 4 million
ounces a year, reported a 10-fold increase in
sequential quarterly earnings at the end of 1999.

Thompson says Gold Fields was the first big gold
producer to stop forward-hedging. (Gold Fields has a
small amount of forward-sale commitments, like at a
gold project in Ghana. Thompson says this is because
the lenders backing the project require the hedges to
safeguard their loans.)

Hedges help gold companies get a better price. But they
also put selling pressure on the metal. Net selling of
borrowed gold boosts the world's total supply by about
10 percent. Central banks' selling of gold -- the banks
have about 20,000 tons of the metal in their vaults --
also has hurt gold prices.

Thompson believes a stock market crash will spark a
rush into gold. "When the bubble bursts, what do you
want to own? The big money is going into gold,"
Thompson says.

Sure, he's outspoken. But he also puts his money where
his mouth is. Last autumn he stepped up to the plate
and bought gold at the Bank of England gold auction.
The purchases back then -- for $258 an ounce -- sparked
a wild but very brief rally in gold.

These days, ahead of yet another Bank of England gold
auction on March 21, gold prices are on hold. The price
of the April gold contract in New York is about $293 an

The Gold Fields story, if you are one of the 18 or so
gold bugs left, is a good one. "South Africa is
becoming more friendly to investors," Thompson says.
Standard & Poor's recently bestowed an investment grade
rating on the nation's debt.

Also helping Gold Fields' stock: "We have led the way
in going unhedged, and the community is rewarding us
for that. We have had steadily improving operations. We
are getting our costs down and production up."

Cash costs in Gold Fields' fourth quarter decreased to
$220 an ounce while gold production rose 2.8 percent to
990,000 ounces. (Anglogold of South Africa is the
world's largest gold producer.) Thompson told me Gold
Fields states its gold reserves conservatively at 74
million ounces.

Gold Fields' shares listed on Nasdaq last May 10 and at
one point had doubled before losing value, like all
gold stocks in the past four weeks. The company's
market valuation is $2.25 billion. Barrick Gold's stock
market worth is $6.6 billion.

Thompson, who spent time as a venture capitalist in
Denver, says, "I've learned you can't call the price of
gold. Still, it has been a long hard winter in the gold
business, and it is time for springtime."

Let's hope, for the sake of those few gold bugs out
there, that Thompson is on the money.