The world's top gold miners are forging ahead with expansion plans and higher dividend payments, despite worries that bullion is bound for a correction after a spectacular runup beyond $1,900 (U.S.) an ounce earlier this month.
The companies are vowing to tackle the issue of share values that lag gold prices through aggressive growth plans, rising margins and sweetened dividends, despite the challenges of rising costs and increased competition for investors.
Executives believe that the price of gold will continue to rise and that equities will soon catch up and could even surpass physical gold in returns to investors.
"I do think the equities will respond," Barrick Gold Corp. chief executive office Aaron Regent told investors at the Denver Gold Show in Colorado Springs, Colo., on Monday.
"The equities have not reflected the strong fundamentals of the underlying businesses."
Gold stocks have been underperforming compared with the price of gold in part because of the rise in exchange-traded funds (ETFs) that allow investors to buy into physical gold. That has drawn attention away from gold mining stocks, which are a wider bet on exploration and production of the precious metal.
For example, gold has risen 28 per cent so far this year, while shares of many mining companies have remained relatively flat or have fallen over the same period.
While their shares have not kept pace with physical gold, miners believe that surging profits and a sold long-term growth profile through expansion and acquisitions, as well as higher dividends will help to both maintain and lure investors.
On Monday, Denver-based Newmont Mining Corp. announced plans to boost its dividend payments to shareholders. The company said earlier this year it would link its dividend payments to the price of gold to help attract investors, and now it plans to increase the payment by about 6 per cent to $1.70 a share if gold stays above $1,700 an ounce. If gold goes higher, so too will the dividend.
Toronto-based Agnico-Eagle Mines Ltd. said Monday it is buying Mexican-focused gold explorer Grayd Resource Corp. for $275-million in cash and shares, the latest miner to expand its operations and prove to shareholders it has a long-term growth plan.
The miners' strategies haven't led to a stampede toward gold stocks because investors need more time to respond to the rapid increase in gold prices, said Chuck Jeannes, CEO of Vancouver-based Goldcorp Inc.
"We aren't valued based on spot prices. We are valued on how you perceive the long-term price of gold," Mr. Jeannes told the Denver Gold Show on Monday.
"I believe that investors will gain comfort with higher metals prices as they continue and sustain themselves," he said, adding that that will then translate into higher prices for equities.
AngloGold Ashanti Ltd. CEO Mark Cutifani, also at the conference, said miners must also do more to communicate their plans to investors. "We aren't doing a very good job selling our story," Mr. Cutifani said of his own company.
Miners are "frustrated," said renowned investor Don Coxe, chairman of Coxe Advisors LLP, in part because investors no longer assign value to their unhedged reserves in politically secure parts of the world.
"We have stuck to our guns, telling clients they should be valuing developing gold companies by that metric – and keeping it for comparing producers with each other," Mr. Coxe said in a recent report.
"To us, the most alluring aspect of the great gold companies was the leverage in their reserves and resources as gold prices kept climbing."
Mr. Coxe believes gold miners with strong growth in secure regions will outperform the gold price over the next year or so. "It may take time before investors are prepared to value reserves at $1,800 an ounce, but the disparity will narrow. Gold's 25-per-cent leap this summer has actually widened the valuation gap," he said.
"Maybe gold investors aren't too greedy – just too cautious."