Anyone Notice That Platinum Is Lower Than Gold?

I have read of studies that show top executives routinely overpay for acquisitions relative to the earnings they got out of the acquiree later. That's a demonstrated bias towards growth of the firm regardless of profitability (i.e., empire-building.)

 

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Economic theory is a pseudo (false) science.

 

Economic theory isn't a science in the conventional sense. But it also isn't pseudo and when properly understood, it goes a long way in explaining why things are the way they are and what could have been done to make things better. Humans add an element of unpredictability and randomness that keeps it from being a science in the sense that results can always be accurately predicted from the initial set of conditions. It is much more complex than, say, physics.

 

Very true. I will look long and hard at an acquiring company since many times its a poor decision being made. I have sold stock based on acquisition announcements, buying the firm being acquired and selling the acquiring firm.

Yes, some empire building goes on, but also justification of purchase price usually assumes a lot more cost savings that ever materialize. I have seen very successful acquisitions, (Ebay of Paypal), and very poor ones, (Ebay of Skype). One thing that is hard for the general public to see, is the value of buying out a competitor. Many times the best way to improve margins is to buy the cheapest competition. On the surface it may appear the purchase was unsuccessful, but if it weren't for the acquisition profits at the parent firm would not be as high as they currently are.

Chris

 

Most corporate acquisitions should be illegal in my opinion.

 

That might be how a firm in the US would do things, but mining operations in other countries-- especially former Soviet republics and Third World countries-- take a different approach. The main goals of mining there are usually to get hard currency and to provide long-term sustainable employment in mining areas. That means mining the low-grade ore while prices are high, and mining the high-grade ore while prices are low, while constantly looking for new reserves.

 

I can see that. To make a similar point, there've been lots of stocks that have gone up in the period 1999-present even though the general market hasn't.

Like gold stocks have

 

Well I do tend to view things from a US business perspective. Buit even in the countries mentioned above political stability, treaties and etc have an impact on which deposits are and are not mined.

 

Those countries usually don't enter into mining treaties, they enter into contracts. For example, a former Soviet republic which is seeking to build up foreign currency reserves hires an outside consultant to identify deposits. Then that country might start a tender process to solicit offers from outside mining companies if there are no domestic companies that can develop the deposit, or maybe start a joint venture with an outside company, with various conditions attached. Usually, the contract states that the foreign JV company must hire X number of local employees, start to develop the mineral within X number of years, keep the mine open for at least X number of years, pay X% in royalties to the national government and possibly the local owner of the concession/property, provide X amount of ore to local smelters, and so on.

 

That is true but they do enter into environmental, worker safety, human rights and other such treaties that impact the who, what, when, where and how of mining operations.

 

Having worked on mining proposals for various countries, I will say that none of the countries I have been involved with make separate treaties for the things you have mentioned when they are trying to attract mining investment. Usually, for worker safety, human rights, and things like that, the contracts will refer to standard international mining practices, or United Nations resolutions. Environmental regulations in contracts are usually based on the laws of the host country, so the mining outfit agrees to abide by those regulations. No treaty needed, just a contract.