New York hedge fund Paulson & Co. and a number of other large global institutional investors have launched an initiative aimed at shaking up the gold industry after years of poor performance.
The Shareholders Gold Council (SGC) will zero in on areas where it feels the industry has fallen short, including executive compensation, mergers and acquisitions strategy, and capital allocation.
A report released last year by Paulson lambasted the gold industry for persistent value destruction that has seen about US$85-billion in write-downs since 2010, triggered in part by ruinous acquisitions made at the peak of the last commodity bull market.
While gold bullion is trading about 35 per cent below its all-time high of slightly less than US$1,900 an ounce in 2011, gold stocks have by and large performed even worse. The S&P/TSX Global Gold Index, which tracks the 44 biggest gold companies, is down 64 per cent since then.
SGC’s 16 member group includes: U.S. firms Adrian Day Asset Management, Apogee Global Advisors, Equinox Partners LP, Livermore Partners, La Mancha Group backed by Egyptian billionaire Naguib Sawiris and Canadian asset manager Delbrook Capital. However, SGC failed to sign up a number of other large gold sector investors such as BlackRock Inc. and Van Eck Associates Corp, said Christian Godin, executive director with SGC. Mr. Godin was head of equities and director of research at Canadian asset manager Montrusco Bolton Investments Inc. until late last year.
SGC plans to publish its first research report on executive compensation in a few weeks. The report will be critical of companies whose management and directors earn much more from cash bonuses as opposed to payment in company shares.
Mr. Godin says the report will include examples of companies where it believes the interests of management and directors are not aligned with shareholders.
“When you keep on receiving bonuses that are multiples of your ownership, that can led to certain questions about alignment of interest,” Mr. Godin said.
This year, Barrick Gold Corp., the world’s biggest gold company by production, moved to a structure that mandates all employees be paid a portion of their compensation in stock, and holdings can’t be cashed out until people leave the firm or retire. The company started revamping its compensation structure for senior staff, including management, about three years ago in the aftermath of a kerfuffle over a US$11.9-million signing bonus paid to John Thornton, current executive chairman. Mr. Thornton now owns 2.7 million shares in Barrick and spokesperson Andy Lloyd said Mr. Thornton has invested all of his cash compensation in the company’s shares over the years.
Paulson was founded by hedge fund manager John Paulson in 1994. The firm profited handsomely during the financial crisis by making short bets against the U.S. housing market. However, over the past few years, the firm has struggled partly because of the underperformance of its gold investments. Assets under management at Paulson have fallen to around US$9-billion from a peak of US$38-billion in 2011.
Lately Paulson has waged a public battle against one of its long-time holdings, Canadian junior Detour Gold Corp. The hedge fund, which owns about 5.4 per cent of its common shares, wants Detour to abandon its plan to develop its flagship mine and instead put the company on the block. The hedge fund has also proposed a new slate of directors for Detour with a shareholder vote on the matter scheduled for December.
As of the end of June, Paulson also owned stakes in Goldcorp Inc., Agnico Eagle Mines Ltd., Iamgold Corp. and 4.3 million shares of the SPDR Gold Trust ETF, which tracks the price of gold bullion.
Editor’s note: An earlier version of this article incorrectly said Christian Godin, executive director with the Shareholders Gold Council, said he’s hopeful Blackrock Inc. and Van Eck Associates Corp. might join the council.
Niall McGee