Investors, weary of operational setbacks and soured takeovers, have turned to gold-backed exchange-traded products that track the price of the metal.
SPDR Gold Trust, the largest gold ETP, has lost 3 percent in the past year, a smaller decline than gold equities. The S&P 500 rose 11 percent and the gold price dropped 2.4 percent in the period. Gold equities are now trading at a discount to the broader stock market.
“The mining industry has lost a lot of appeal, of interest, because of poor guidance, poor delivery, over- promising, cost overruns,” said Gerald Panneton, a former Barrick executive who’s CEO of Detour Gold Corp., the operator of one mine in Ontario. The global gold-miner “is not a model that is sustainable,” he said in a March 5 interview.
To win back investors, Barrick and competitors including Newmont Mining Corp., the second-biggest producer by sales, are promising they’ll focus on margins and containing soaring costs, rather than boosting output.
Easier Expansion
Returns will drive production, rather than the other way around, Barrick CEO Jamie Sokalsky said Feb. 25. Barrick says it will defer, shelve or sell assets that don’t meet his requirements for returns and cash flow.
“Our overriding objective is to translate the company’s strengths into higher shareholder returns and we’ll always consider opportunities to advance that objective,” said Andy Lloyd, a Barrick spokesman.
Breaking up the biggest gold producers could result in higher valuations for the parts compared with the whole, according to Stifel Nicolaus’s Topping. It would also make it easier for companies to expand output and replenish reserves, said Jorge Beristain, an analyst at Deutsche Bank AG in Stamford, Connecticut.
“There is a logic in sort of shrinking to grow, if you will, as the type of growth that they would be able to tackle would be less risky and more digestible in size,” Beristain said in a phone interview March 15.
Paulson’s Bet