$olgold - Favourite investment idea for 202019 Dec 2019 21:48
MoneyWeek’s contributors share their favourite investment ideas for 2020, ranging from Singaporean property to global equities.
https://moneyweek.com/519864/the-investment-ideas-for-2020/
James McKeigue
Think of some of the great investors’ calls. Soros shorting the pound, perhaps, or the hedge funds that spotted flaws in subprime. They all involve identifying a market anomaly – something that looks unsustainable over the long-term – and then betting against it continuing. At present there is a 700-mile-long anomaly in the Andes mountain range – Ecuadorian mining.
As Francisco Pizarro and his fellow conquistadores could have told you almost 500 years ago, the Andes is crammed full of gold, silver and copper. That’s why we’ve seen large mining industries develop in Chile, Peru, Bolivia and Colombia. But not in Ecuador.
That wasn’t because of a lack of mineral resources. Despite the limited exploration more gold and copper has been found in Ecuador than anywhere else in the world over the last 15 years.
Instead, a combination of social and economic factors – an abundance of oil, poor infrastructure and political instability all played a part – meant Ecuador never developed a large-scale, modern mining industry. That anomaly clearly couldn’t last forever. In recent years successive governments have improved conditions for international miners and in 2019 Ecuador’s first-ever world-class mine began operation.
But this is just the beginning of the Ecuadorian mining boom. Twelve of the world’s major mining companies have already set up offices in Ecuador and several more large projects will come onstream over the next few years. Of course, there will be hiccups on the way. Ecuador remains a politically volatile country, prone to protests.
Yet, over the long run, mining is bound to grow in Ecuador. It has the mineral resources. And as the country’s politicians slowly get used to the extra tax dollars generated by mining, while increasing numbers of Ecuadorians find work in the labour-intensive industry, it will follow its Andean cousins in developing a serious mining industry.
In Peru and Chile, mining accounts for between 15% to 20% of GDP. If Ecuadorian mining grows to even half that size it will create huge wealth for investors. Fortunately for us there are two companies that give us a direct way to get in early on the story.
One is Lundin Gold (Toronto: LUG), which built and operates Ecuador’s first large goldmine, while the second is London-listed explorer SolGold (LSE: SOLG), which has the country’s most exciting portfolio of projects to develop.
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