Note from the editor
Gold miners seek to restore shine to shares
By Helen Thomas in Toronto
PDAC – or the Prospectors and Developers Association of Canada’s annual convention – is a show that some mining industry heavyweights disparage. True, of the 30,000 visitors who descend on Toronto’s convention centre each year many are geologists, retail investors and junior explorers full of hope that they are on the cusp of the next big find.
But also in the city are bankers, lawyers and executives who schedule a grueling round of meetings, catching up on who is doing what and with whom in the mining world. The result is a useful barometer on the industry – and a shortage of restaurant tables.
Gold has been the talk of the 2012 edition of PDAC, which ended last week. The yellow metal’s miners have been trying to draw attention to themselves – after a prolonged period where stock prices have lagged behind the rise in the gold price.
Whereas gold stocks once reliably traded above a multiple of twice their net asset value – with the largest producers commanding a premium – they are now languishing below 1.5 times. One gold executive estimates that valuations reflect a long-term gold price of $1,200 per ounce. The spot price, close to $1,700, passed that level and did not look back in mid-2010. Despite substantial volatility, gold is up 18 per cent over the past year.
Opinions vary but – judging by my conversations at the 2012 PDAC gathering – gold miners are loathe to admit that the gap in performance reflects a gold price unsustainably inflated by loose monetary policy by central banks and inflationary worries. Instead, they argue, share prices are depressed by other factors, such as a series of poorly received deals by gold companies or the failure to discover new, high-grade gold deposits.
Big producers are indeed struggling to develop new projects to replace the reserves they mine. That, with beaten down share prices, sounds like a recipe for merger activity as companies seek to buy in others’ exploration successes. However, it is also the largest gold companies which feel the market’s revaluation most keenly, with their traditional premium to smaller peers eroded. They may be reluctant to splash out on the industry’s up-and-comers, who are being rewarded for their better growth prospects.
Instead, the senior miners are discussing dividend policies to keep investors – who can now get exposure to gold prices through exchange-traded funds – interested.
Meanwhile, a few brave souls are daring to venture another explanation for the uncoupling of gold stocks from the price of the precious metal – that it reflects a more fundamental and lasting shift in the way investors view the sector.
Other vehicles to bet on the precious metal’s ascent have reduced demand for gold stocks. But, they argue, investors are also starting to value gold companies as, well, businesses, rewarding them for good management, cost control and sensible strategic planning, rather than simply computing the intrinsic value of ounces in the ground.
The period of adjustment for gold companies may be only just beginning – so stay tuned for the 2013 PDAC gathering in 12 months’ time.
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