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[Ulisses Pereira]

"Gold Companies Look Tarnished"

By James J. Cramer
11/12/2002 11:02 AM EST


"Don't these gold companies just make you sick? Newmont Mining (NEM:NYSE - news - commentary - research - analysis) now joins Barrick Gold (ABX:NYSE - news - commentary - research - analysis) on the list of untrustworthy stocks because it blew the quarter big-time and then restated its earnings for a prepaid forward sales contract.

Both companies have turned out to have ore quality problems. Both companies gave you a false sense that they were the way to play the gold rise. Both companies have done nothing despite the gigantic surge in gold.


Every few years gold stocks flare up as an investment. They have a great quarter, and then the mutual funds that invest solely in them run up, get written about, get more money in -- and bid up these gold stocks again.

Periodically in my career, I have been faked out by this group. I know that I had management from Barrick Gold on my television show, CNBC's "Kudlow & Cramer," and spoke with them repeatedly about how well they were doing. I got enough confidence to buy some for my Action Alerts PLUS account, only to get smashed when the company admitted that much of what it was saying about its prospects was just plain wrong.

When companies that are meant to be proxies for businesses (Alcoa (AA:NYSE - news - commentary - research - analysis) for aluminum, Phelps Dodge (PD:NYSE - news - commentary - research - analysis) for copper) mess up the way Newmont and Barrick have, in my opinion that's unforgivable. You only bought these stocks to take advantage of the rise in the metal. They turned out to be bogus proxies through no fault of the investor, and through every fault of company management.

Let both Newmont Mining and Barrick Gold be a lesson. If you want to play gold, buy gold, the physical metal. These two companies look more like plays on the inept nature of each company's management. They would be better as shorts against the metal as a terrific hedge, because neither company's management seems to know what the heck it is doing. "

(in www.realmoney.com)