In mid December the Saudi government finally allowed Saudi Aramco to trade on a stock exchange which resulted in the company becoming the world’s most valuable company at $2 trillion. The math is simply take the number of shares outstanding multiply by the price at the stock exchange and in this case it is a very good number. Saudi Aramco owns the oil in Saudi Arabia and it is still very inexpensive to bring the oil to the surface. The world’s most valuable company is also the world’s most profitable company.

In an article by Marwa Rashad, Stephen Kalin, and Saeed Azhar of Reuters, the IPO of raised $25.6 billion for the government. Most of the money from the listing comes from the Gulf and that is why the shares are listed on the Tadawul exchange in Riyadh and instead of 5% of the company being sold only 1.5% was sold. Aramco is valued 6 times as Exxon Mobil.

Although very profitable, anyone who bought Aramco is a positive on the price of oil moving upwards, but forecasts suggest after 2025 the demand for oil will decline due to actions regarding climate change.

Similar to governments around the world when they privatize a part of their assets, the government intends to use the proceeds on domestic projects.

Linking to dividend paying stocks, one of the reasons why the Saudi Aramco should be on your radar to invest in either indirectly or directly is the profitability factor. The cost of production is very low relative to other companies around the world. Saudi Arabia still has some giant oil pools that continue to allow oil to flow at low cost. It is hard for management not to make a profit. Similar to every semi privatized company, until the government of the day has less than 50% of the shares or no longer controls the company, the management serves two masters – politicians and investors. Sometimes they work very well together, sometimes they do not. Beware of the constraints of management.

There are more questions than answers, till the next time – to raising questions.

In July of 1943, the world was interested in who killed Sir Harry Oakes? At the time of his death Sir Harry was said to be worth over $200 million or about $3 billion in today’s money, most of it earned from a gold mine. They were the regular suspects, the son-in-law who needed money; the real estate people. Sir Harry was the largest landowner in the Bahamas and the former King of England was the Governor, had to step down to marry or did he step down because he was too close to the Nazi Party in Germany?

Sir Harry was born in Maine and caught the gold bug. He went around the world looking for gold California, Alaska, Australia, Nevada, South Africa and by 1911 northern Canada. He was looking for porphyry a reddish, crystallized volcanic rock which is associated with gold deposits. In a book called Murdered Midas written by Charlotte Gray published by HarperCollins, Toronto, 2019 outlines the rise of Mr. Oakes. The trip up to where Mr. Oakes eventually found the gold was a prospector’s journey. The railroad stopped 20 miles from where he was going similar to many mines before they become productive. The prospectors needed money to develop the property. For some general store merchants, they often took shares in exchange for money. Sometimes the shares increased, sometimes they did not. Harry had similar problems and reached out to friends and family to seed his ventures – his family found cash and 1912, Harry was back in Kirkland Lake.

By 1913, Harry had teamed up with other prospectors and owned shares, their mines were easier to mine and with his profits reinvested the money into his own property. In 1914, Harry formed Lake Shore Mines with 2 million shares with a par value of $1. By 1916, only 300,000 had been sold at prices ranging from 15 to 30 cents. Why? the war was a reason; the first drill was a bust; but Number Two meant a vein 12 meters wide of gold, it would yield some of the richest ore ever seen in Canada. In the mid 20’s Lake Shore Mines traded for $46 a share.

One of the reasons why the shares went to $46 was Harry wanted to process the ore in Kirkland Lake rather than ship it out to the country. He needed money, eventually sold shares to folks in Buffalo and they were rewarded when Lake Shore paid its first dividend in 1918 and over the next 20 years, they received dividends totalling $32 million.

The dividends came because the mine in 1918 produced gold valued at $416,414 of which $100,000 was paid in dividends.

Harry owned nearly 50% and the rest was well diversified which meant he had control of the company. Between 1924 and 1932, Harry’s mining stock earned him about $10.7 million or about $25,000 a week. In 1934, Lakeshore Mines was paying dividends of $3.15 million.

In order to reduce taxes from both the US and Canada, Harry’s lawyer Walter Foskett of Palm Beach set up several holding companies to purchase all of Oakes’s Canadian securities including the million shares Harry personally owned. Oakes then took shares in tax-free Bahamian corporation so they could pay him, as dividends, what they received from Canadian securities. Once Oakes was receiving dividends from the holding companies rather than directly from Lake Shore, he no longer liable to pay income tax on income in Canada, instead as a resident of Bahamas he paid a 5% withholding tax. Between 1925 and 1939, Harry’s dividends amount to $22.75 million of which Canadian tax was $1.1 million. The $20 million was to be spent however Harry wanted or about $400 million in today’s dollars.

In reality, by the 1940’s the gold at Lake Shore Mines in Kirkland Lake was becoming unprofitable at $35, but Harry was a wealthy man. Todayif you were to go to Bahamas as a tourist you would see many millionaires taking the same route Harry did when he first went to the islands. Saving taxes and enjoying the sun.

Linking to dividend paying stocks, most gold mines are very risky, unless they are the gold royalty stocks which are good investments. Lakeshore Mines was a mine which fit the dogged determination of the owner who was struck with gold fever and it paid off. There were many claims at the same time which did not. If you invest in the mining industry, understand the risks, there are other methods to participation – mines need equipment who provides the equipment? who provides the supplies? there are options which can provide you will some gold fever but not enough to take dramatic risks.

There are more questions than answers, till the next time – to raising questions.

A few years, President Trump gave corporate America large tax cuts and in reality many of the dollars saved by public corporations went into buying back their stock. There were positive affects of buying back stock, the number of shares decline which means the same income with automatically have a higher earnings per share outstanding which reflects in a higher multiple on the shares or higher prices for stocks.

Billions of dollars went into buying back shares and one of the reasons it is good to look through the financial press is did you know there is a index fund which tracks companies which buy back their shares? In an article by Ian McGugan, he discusses the S&P 500 Buyback Index. Since 2009 or for the past 10 years, if you had bought a regular index fund, you should be up 13% on an annualized basis; the S&P 500 Buy Back Index is up 15.7%. For 2%, I not positive if that is a great reason to switch but it is worth noticing.

When examining any fund, it is important to look at what the critics are saying. For example many US drug makers spend more money on stock buybacks than research and development of new drugs. (given the government gives 21 year patents, which mean higher drug prices is this good government policy?) The critics also suggest with good reason, if a company is buying back shares, then by definition they are not investing in back into the growth of the company. The management of the firm has determined the best use of excess capital is to buy back shares.

Those that defend the use of buybacks, suggest buying back shares when they are undervalued is a very good thing to do, because the shares could be out of favor with Wall Street; for example since interest rates are low, it makes good economic sense to borrow money. If a company has low debt, they may not be taking advantage of the low rates to grow the company. Buybacks are also a terrific thing to do if management determines the best use of spare cash is to buyback shares rather than the other alternatives – grow or buy competition.

The question the author asks, is it a good time to consider buying the S&P 500 Buyback Index? maybe not because the best years are when the majority do not notice or few people are paying attention to the idea. Sometimes the best flavor is vanilla, the S&P 500 Index has done well.

Linking to dividend paying stocks, we often think companies which consistently make profits and can afford to pay dividends is the easiest method to invest in. These companies have choices after they pay the dividends – grow the business or make the balance sheet even stronger with less debt or buy shares. Companies have choices, as investors while we love to receive dividends, we also love growth. If the company consistently increases the dividend while maintaining profitability you gain the best of both worlds and ensure discipline remains in management.

There are more questions than answers, till the next time – to raising questions.

If you are a normal person, you are not control of billions of dollars to invest in., but it makes good sense to see if those that do control billions are doing what you are thinking about on a larger scale. One of the biggest alternative asset managers is a company called Blackstone Group which has $544 billion under administration with about $148 billion of client capital which needs a home. The co-founder, chairman and chief executive Stephen Schwarzman has that problem, but he sees opportunity.

Recently Mr. Schwarzman wrote a book called What It Takes: Lessons in the Pursuit of Excellence and with every writer, the next phase is a book tour. Andrew Willis wrote an article about him.

When Mr. Schwarzman founded the company, there were plenty of opportunities, he noted now there are thousands of smaller private equity and real estate funds searching for opportunities to invest, even though Mr. Schwarzman believes Blackstone can still find and buy very good positions. In the past year, the company bought $18.7 billion on US warehouses from Singapore based logistics company GLP. This was billed as the largest real estate transaction in history.

Mr. Schwarzman believes culture is an important element in the company and spends one morning or afternoon lecturing at the 3 week training program that is mandatory for every new employee.

Linking to dividend paying stocks, for most companies service and culture are considered to be very important, what makes it so and who keeps the culture alive? How does the President or CEO keep the culture to all employees? Blackstone is a very specialized company, but everyone takes a 3 week training program, think about when you joined the company or someone you know joins a company, what do they do?

There are more questions than answers, till the next time – to raising questions.

The Opioid epidemic is going through society and the solutions are complicated. In a book called Fentanyl Inc – How Rogue Chemists are creating the deadliest wave of the opioid epidemic by Ben Westhoff, published by Atlantic Monthly Press, NY, 2019, the book relates the change from plant based chemicals to synthetic based chemicals.

For a generation or more, we had a war on illegal drugs, from many perspectives it has not worked that well. However, the war has increased the amount of money, government spends on the “war”. Much of the war is based on the movement of plant based drugs – marijuana, heroin and the like. The new drugs are coming from laboratories and the formulas can be shifted to stay in the grey side of legal. Every year, the molecular structure of the drugs changes to something a little different, but still allows the user to achieve a high or no pain.

The issue is always how do drugs interact with the other parts of the body and when will the person need to achieve another high? The synthetic drugs can give a person a greater high, but the side effect is more people are dying from using the drugs, what should the government do? There are many options but what have the cartels done?

The book describes the cartels as evolving because synthetic drugs are cheaper and easier to move than plant based drugs. This means there is greater profit and less risk, because the new drugs are harder to confiscate because the laws are always one step behind the changes in molecular. For example, if the government changes the law on one formula of drug, the drug makers simply alter the formula which is just inside the law or not illegal. It is very hard for law enforcement to change quickly. In addition, the suppliers of raw materials in the chemical world interchange it with legitimate chemicals our society uses for good purposes. The practice is similar to large pharma companies, when a patent comes off a billion dollar drug, they need something in the pipeline to replace it that does similar stuff but can charge premium prices for it. For the pharma companies we think that is good strategy. For the cartels and synthetic drugs, the problem is people will die. The interesting aspect is the people hooked on drugs will find out what the other person is taking and want the high no matter the risk.

Where is the information about what drugs are more powerful than others, the academic journals which are published. The distribution is through the dark web and shipped by the courier companies who promise next day service. It is very difficult to go through the billions of shipments of packages to find the illegal ones or the ones suspected of being illegal.

The USMCA trade deal can help the distribution channels from Mexico and Canada to the US with all the legit cross border shipments, add in the illegal ones and the border is not as secure as one thinks. In China, the labs are in suburban office towers, maybe the same in the US.

Linking to dividend paying stocks, if one examines the cartel trade to a fortune 500 company, there would be many similar aspects which would ensure the long term success. Both need to be innovate, able to distribute across the country, earn the highest margins with the low risk. If you could invest in the cartels, you likely from a financial standpoint would make money. The downside is the cartel people typically have short lives because they shoot bullets at the competition and anyone who goes against them. You can not have it both ways, the better way is to invest in legal companies and enjoy the dividends in your retirement.

There are more questions than answers, till the next time – to raising questions.

Airlines are an important national infrastructure for any country, it is understandable that countries will ensure the airlines continue to function with government taxpayer money. In the case of the South African Airlines, for many years the airline was the biggest airline in Africa and a valuable asset to the country. The airline is now the second largest airline after Ethiopian Airlines which has 120 aircraft, twice as many as the South African airline.

In an article Geoffrey York of the Globe and Mail, South African airlines is losing $35 million a month and the management of the airline is in the hands of an independent business rescue practitioner. For many years, under the former President, the airline was used to do more than move passengers, it was mismanaged and corruption in the practices was routine.

The airline carries about 7 million people annually and has over 5,000 employees will likely have fewer than 3,000 in a few months. The airline has crippling debts which meant the airline was only able to pay half of its workers on time, delaying the others for several days.

Every existing politician talks about the cost, but the cost of not having the airline, even though it will be a smaller airline is unthinkable.

Linking to dividend paying stocks, just because the company is the largest and the best, does not mean it will stay there forever. Companies need good management and people who can say no to plans and yes to ensuring the company makes a profit and can pay dividends no matter what the political masters are suggesting. If your company, is “helping” the government, ensure that when governments change, the revenues still come in.

There are more questions than answers, till the next time – to raising questions.

When a company is on a downward spiral, forces on the outside help push the forces to go faster downhill. A case in point is South African Airways as described in an article by Alexander Winning of Reuters. South African Airways (SAA) has not made a profit since 2011, and has been struggling with an unprofitable network, inefficient planes and a bloated work force despite the government bailing them out for $1.8 billion in the past 3 years.

There was a 8 day strike when 2 of its biggest unions wanted increase pay and the airline was forced to cancel hundreds of flights.

Banks now want government guarantees before they will lend SAA money.

The coffin is being shut as 2 big travel insurance companies stopped covering tickets issued by SAA against insolvency. Santam’s Travel Insurance Consultants (TIC) and Flight Center Travel Group said it would stop selling SAA tickets.

The President of South Africa has said the bailouts of the airline must stop, but the Public Enterprises Minster was to save SAA with another bailout to keep the airline afloat. The Finance Minister has refused to sign a bailout.

The Board and Executives of SAA were in intense discussions with the government and exploring all options regarding the future of SAA. The company is still in business trying to pay its staff and be the airline of the country.

Linking to dividend paying stocks, when things go bad, they seem like a big rock rolling down the hill, it will take a supreme effort by the government to stop or slow down the speed of the rock, if they are willing to make make tough decisions besides to hope for the best and bailout the airline for another few months. Is there political will in South Africa? The lesson to be learnt is when the insurance companies begin to bail out, there is very little time left.

There are more questions than answers, till the next time – to raising questions.

Particularly in Europe where climate change and how to do something about it is more important but from the general public and politically, in North America we still see some high ranking politicians ask if climate change is changing because of humans. In Europe, according to an article by Matthew Green and Simon Jessop of Reuters, European investment funds managing over $1.5 trillion in funds have asked the big 4 accounting firms to ensure part of their analysis of companies includes climate-related risks.

It is rare for investors to be proactive, because with investments if you do not like what management is doing, it is easier to sell your holdings and buy into companies that do what you think is better for both the short term and long term. As investors, we either want capital gains and/or profits to pay dividends. How the company does that, is management’s concerns, as long as they do, investors tend to vote for management during the annual meeting.

Thus it is rare for investment funds to get together to ask for something. Natasha Landell-Mills head of stewardship at asset manager Sarasin & Partners is spearheading the campaign. Letters were sent to the Big Four accounting groups – Ernst & Young, Deloitte, KPMG and PricewaterhouseCoopers. All 4 companies noted they have giving their auditors training into how to factor climate change in their audits.

Linking to dividend paying stocks, usually the auditors take their marching orders from the most risk adverse group – the insurance industry. If the industry loses money, you can be assured they want rules to change to limit their losses and make others pay. As investors you will continue to see greater metrics to examine your company, not just whether it makes a profit and pays a dividend. You will need to decide which is more important and whether you should look for alternatives.

There are more questions than answers, till the next time – to raising questions.

For most of us, the words of sustainability and mining do not go together because the process of mining is to move great amounts of earth to find the small amount of minerals buried underneath the earth. Depending on the mineral, it can involve using cyanide to separate the rocks; most process also involve water to help separate the earth and the minerals which are embedded in the earth.

One method to examine how mining is getting more sustainable is examining the methods they use water. Of the 54 industry groups classified under the Thomson Reuters Business Classification scheme, only utilities use more water than metals and mining. With this knowledge, Hugh Smith of Refinitiv’s ESG asked how are the global miners using water?

His criteria was:

How dependent are companies are on water withdrawal through the number of cubic meters withdrawn per million US dollars in revenue. The average is 33,400, in order to look for the best started with 10,000 cubic meters.

What proportion of the use of water is freshwater? Trying not to compete against local populations and agriculture, the ideal was no more than 75% fresh water sources.

Most of us practice the 3Rs of recycling at home, how well does a mining companies recycle or reuse their water? Mr. Smith was beginning at 70%

Company Mkt Cap Water (M3/Rev) Fresh Water 1 Yr Div

$ bil (US$ Mil) Water% Reused RTN% Yield %

United Co. Rusal 6.703 3,439 28 389 52.0 4.0

Agnico Eagle M 14.348 8,858 32 71 69. 3 1.1

BHP Group 120.668 8,015 51 77 25.3 6.1

Polymetal Inter 6.983 6,508 60 255 54.9 5.3

Anglo American 22.802 4,700 75 106 173.2 3.0

Plantinum

Linking to dividend paying stocks, for a long time in the mining industry, it was felt you had to have one or the other. Be for the earth and leave the minerals in the group or take the minerals out of the ground. As sustainability brings more metrics to the equations, we can now examine who does and does not recycle better? and ask at the shareholders meetings why not this company, if BHP can do it why not you? The sustainability index should allow the better miners to meet evolving government regulations, because they can and make a profit doing it. That is good news and that can help everyone live better lives.

In the article it said, Aluminium maker United Company of Rusal recently became the first Russian borrower to sign a sustainability-linked loan. The financing, where the amount of interest paid on the loan is tied to sustainability targets. The bonds drew a high level of interest despite the company based in Russia with its different standards of governance levels. However it is a good start.

There are more questions than answers, till the next time – to raising questions.