A drop in the once-high valuations of gold-producer stocks has led many companies to tighten operations and increase dividends to make investing in gold miners an appealing option again.
Several executives from leading gold firms conceded at the recent Reuters Mining and Metals Summit they may have some responsibility in losing investors to choosing gold bullion over companies that produce the precious metal.
“Over the last year or two, investors who love gold…have been quite disappointed in the general gold [mining] sector’s performance in terms of execution, be it capital blowouts, or a range of operating issues,” Greg Hawkins, chief executive of African Barrick Gold (ABG), said at the summit.
Until about five years ago, gold miners were seeing valuations grow to more than twice that of the broader market, according to Reuters. From 2005 to 2006, the forward price/-earnings ratio of gold-mining stocks was about 30 to 35, compared with about 15 for the broader market of U.S. equities.
The situation has flipped. With mounting costs from operating in remote locations hitting the bottom lines – and attractiveness – of gold-mining companies, investors began favoring the opportunity to invest in gold bullion through exchange-traded funds tied to the price of gold, which have since secured $130 billion of fund inflows, according to Reuters.
As a result, gold mining firms are hoping to shine brighter for investors, executives say.
“We can’t just continue to battle each other for the same dollars from the same gold funds,” said Chuck Jeannes, chief executive of Goldcorp (GG), told Reuters. “We need to attract those generalist investors, but to do that we need to run our businesses very responsibly, we have to deliver on the financial promises we make and we have to avoid the big issues that scare those investors away.”
Some executives said large dividend increases could help draw more attention from investors. In February, both Kinross Gold (KGC) and Agnico-Eagle (AEM) saw shares rebound after dividend increases, although both stocks have sunk well below those prices.
Similarly, in September 2011, Newmont Mining (NEM) announced it would link dividend payments to the price of gold, but its stock is trading at two-year lows.
Are you bullish or bearish on gold stocks at this point?