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Timothy Wood, executive director Denver Gold Group, prepares to introduce Marcelo Kim, partner at Paulson & Co, for the Gold Equities: Myths, Dreams and Reality presentation
On Tuesday, New York hedge fund Paulson & Co, founded by noted gold bull John Paulson launched a blistering attack on the world’s top gold mining companies over “serial value destruction” in the industry.
Speaking at the Denver Gold Forum, the sector’s most important gathering now in its 28th year, Paulson & Co partner Marcelo Kim called on major gold equity investors to join a coalition – dubbed the Shareholders Gold Council – to stop CEOs, boards and management enriching themselves at the expense of shareholders and prevent companies from embarking on the kind of acquisitions and budget blow-outs that according to Kim have destroyed $85 billion in value just since 2010.
Kim said he was speaking with the full backing of Paulson (his fund holds over $500m in gold ETFs and a variety of gold mining stocks) and that Tocqueville, a fellow precious metals investment fund, had already endorsed the initiative.
“If we don’t do anything to change, then as investors we will continually be disappointed with shareholder returns and the industry will slowly dig itself into a hole of irrelevance and oblivion,” Kim told a packed room of delegates while showing slide after damning slide detailing the industry’s “dreadful” performance.
While the gold price has added 20% since 2010, average total shareholder returns from investments in the top 13 producers are a negative 65%. Over the same period the CEOs of these companies pocketed a collective $550 million in pay, Kim said.
Canadian miner Eldorado Gold came in for the most severe criticism for destroying value through ill-advised acquisitions (the most recent last year), but Kim also highlighted Randgold Resources as an example of how disciplined strategy can create value for shareholders.
The Africa-focused miner and Russia’s Polymetal were the only companies to beat bullion’s performance to end-2016 and Kim pointed to the irony that the latter’s CEO was by far paid the least while Eldorado’s boss had raked in $65 million since 2010. While the presentation did not look at small and mid-tier companies, Kim said he suspects that the same trends are visible among juniors.
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11 Comments
Goldfinger
Great presentation. The part was missing on the reasons was having a strong stage gate process for Acquisitions, have strong owners teams with experienced project people and do thorough evaluations of projects. That hasnt been happening because when the top guy ( CEO) has a woody for a merger nothing will stop the process and they have gotten around having any internal dissent by firing most of the internal project guys.
John Ryan
If you look at the Boards of the major gold miners they are comprised of a lot of people with financial backgrounds, people from oil and gas which is NOT hard rock mining, and people with public service or government experience. There are way too few engineers, geologists, and metallurgists on these boards. Maybe they have some people with technical skills on advisory boards but generally that is window wash anyway. As we all know, these projects fail due to overestimating reserves, overestimating grade, underestimating costs, underestimating development times, and overestimating recoveries. Lack of technical expertise is the problem and no committee will actually solve that.
Matthew
Great stuff……..it is actually BS how much some of these dum-dums at the top are paid. They should have a base pay of little and all the rest based on value added. Same with the hedge fund guys.
ExPat
Compared to most CxOs at major and mid-tier precious metals mining companies, the 19th century prospectors that could not read or write, and even the burros that accompanied them, were more capable of making good capital allocation decisions and managing risks.
Steven Walker
It appears from my experience that the most ignorant and arrogant a-holes are management in most gold companies. Most need to be PURGED out of a job, which they are not qualified for and they could care less about their SUCKERS…I mean shareholders.
We have owned this large high grade past producing gold mine in California…GladstoneGoldMine.com and have had 2 of the world’s largest mining companies along with MANY others on property. The geologists love it BUT it is turned down by management, as management has turned into idiot bean counters instead of REAL miners that actually understand the business they are in……mining gold, NOT shareholders!
When you have these large gold companies telling you that they won’t buy it or partner with you at $25 million…BUT if you put $1 million in it and they will pay $180 million for it…something is very wrong with the model they are stuck in.
El Panadero
I think the little fellow has a great point.
El Panadero
I think the little fella makes an excellent point.
John Ryan
If you look at the Boards of the major gold miners they are comprised of a lot of people with financial backgrounds, people from oil and gas which is NOT hard rock mining, and people with public service or government experience. There are way too few engineers, geologists, and metallurgists on these boards. Maybe they have some people with technical skills on advisory boards but generally that is window wash. As we all know, these projects fail due to overestimating reserves, overestimating grade, underestimating costs, underestimating development times, and overestimating recoveries. Lack of technical expertise is the problem and no committee will actually solve that. Excess Exec pay is a big problem but not the core problem. Core problem is lack of mining knowledge at the top.
Paul
Although the mantra has been shareholder value it seems now is in reality director value – forget the shareholder. Mind you the shareholders can always vote off the directors not serving their best interest.
J bama
Gold mining is going down the road paved by the coal miners. Check out the Peabody Energy reorganization for example. Declare bankruptcy, wipe out shareholders, and then reserve 10% of the newly issued shares for current management (so they won’t leave)…The cronyism at the top between executives and the board and their utter lack of regard for shareholders is remarkable and it is high time that someone calls attention too it.
Robert Barrie
Over the years they have basically set up slash funds for themselves and guarantee great pay and pension benefits, load boards with cronies that are all yes men with no contribution. Hard Rock miners are sidelined. I am sure many of them have not visited a site or has been underground for many moons!