01/20/2014 6:00 am EST
Our top pick for income investors for 2014 is a "Yankee" bond issued by a gold mining company, explains Vivian Lewis, international investing expert and editor of Global Investing.
Our recommendation is from Barrick Gold (ABX). We are not recommending the common stock; rather, we are buying the 4.4% Yankee bond from Barrick North American Finance LLC, maturing May 30, 2021.
These bonds trade under the CUSIP 06849RAF9, at $96 on the NYSE. There are $1.35 billion in bonds outstanding and it is liquid. The yield to maturity is over 5% and the bonds may rise in price, if events work out. They are rated Baaa2 by Moody's.
The negatives regarding Barrick-the world's largest gold miner-are not confined to the price of gold. Its huge $8.5 billion project at Pascua Lama, in the high Andes, was suspended in October.
The gold project straddles the Argentina-Chile border. Chilean environmental authorities ordered Barrick to end pollution of Chilean water near the mine construction site. Completion is now not expected until 2017 and Barrick may do further asset sales of copper mines or even issue more shares.
Meanwhile, Barrick founder Peter Munk has stepped down and banker John Thornton is the new chairman. After Thornton lost out in the race to head Goldman Sachs, he taught finance in Beijing and knows top Chinese leaders.
Financier Thornton may use forward (hedged) gold sales rather than issuing more bonds, as Munk did. He is expected to persuade China to invest in ABX directly, or in a project which would cause the bond to be re-rated.
This is a medium-risk Yankee bond, denominated in US dollars, with a yield.