Bloomberg News

APAC Resources Favors Gold Companies as Iron Ore Wane

October 19, 2012

(Corrects to say APAC is the biggest shareholder in the sixth paragraph.)

APAC Resources Ltd. (1104), a Hong Kong- based resources investment company, has raised its weighting of gold and other precious metals companies, as prospects are diminished for bulk commodities such as iron ore.

“We’re probably now longer in precious metals as a rule, with one or two oil and gas companies,” Chief Executive Officer Andrew Ferguson said in a phone interview on Oct. 17. “I’m a believer in precious metals. Gold, silver, especially platinum and palladium.”

Excluding strategic investments, he said APAC has about 25 percent of its portfolio invested in precious metals companies, up from about 10 percent a year earlier. He said the company is looking at potential gold and coal investments in Indonesia.

Silver has jumped 18 percent and gold has gained 11.4 percent so far this year, making them the best performing metals in the S&P GSCI Commodity Index. In comparison, iron ore has dropped 16.6 percent this year, falling last month to a three- year low on concern over slowing growth in China’s economy.

“Quantitative easing is happening in the U.S. and Europe. Printing presses are printing more dollars, inflating their debt, and undermining the value of the currency, said Ferguson. ‘‘Traditionally, gold has been a very good store for wealth.’’

Spending Deferred

APAC Resources is the biggest shareholder of Mount Gibson Iron Ltd. (MGX), an iron ore producer in Australia, according Annabelle Wong, APAC’s assistant manager of corporate development. The mining company said yesterday it’s deferring or canceling as much as A$150 million ($155.5 million) in capital expenditure for 2013 and cutting 270 jobs in response to falling iron ore prices.

‘‘While iron ore might not be as exciting or as sexy a sector as it once was, it’s still very profitable,” Ferguson said. The company might have sold its Mount Gibson shares if it held a smaller stake, “but it’s a strategic investment and we work closely with management,” he said.

Iron ore prices should stabilize around $100 to $120 a ton, roughly the level of China’s cost of production, he said. “My longer term view is I’m still quite optimistic about iron ore.”

APAC Resources shares have declined 24 percent this year. The stock gained 2.5 percent to 25 cents at the close in Hong Kong yesterday.

The company reported last month a loss of HK$527.5 million ($68 million) for the year ended June 30, compared with a net profit of HK$1.46 billion a year earlier. That includes a HK$296.4 million loss on its resource investment portfolio, in which it invests in resources companies globally. Its strategic portfolio, in which it holds stakes in Mount Gibson and Metals X Ltd. (MLX), recorded a 65 percent decline in profit to HK$240 million.

To contact the reporter on this story: Michelle Yun in Hong Kong at myun11@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net


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