Column: In search of the elusive green nickel premium
Just about every Western producer will tell you metal produced to higher environmental and social standards should command a premium.
BlackRock (NYSE:BLK), the world’s largest asset manager, has criticized gold producers for misleading shareholders by means of faulty metrics and issued a call for improved benchmarks that more accurately reflect their performance.
The Australian reports that Catherine Raw from BlackRock’s World Mining Fund has said that current metrics employed by companies are “misleading people” and called for improved reporting standards which more accurately assess the cost performance of producers.
“Everyone is rushing to say that cash is below the average, below USD$500/oz, when actually when you take into account…growth capex, it’s just not true,” said Raw.
Raw says this is an industry-wide problem which not only misleads investors but also incurs higher taxes and royalties from governments due to disingenuous profit reports.
Speaking at the Mines and Money Conference in London Evy Hambro of BlackRock’s Natural Resources Equity Team reiterated his colleague’s call, saying that gold industry leaders should “come up with an industry standard that allows them to talk to their shareholders on a level playing field so you can see who is doing a good job.”
Hambro had a harsh appraisal of the industry’s recent performance, saying that gold shares have languished despite surging bullion prices because companies have engaged in profligate share issuance to chase production at lower ore grades.
“If the industry hadn’t chased lower grades, would share prices have been higher today than they currently are? Our view is that yes, companies would make far more money.”
Hambro also criticized the poor return on investment of gold miners, noting that the sector only pays out 25% of its earnings as compared to 45% in the oil industry, and called for producers to raise their dividends to attract investors instead of pursuing growth for its own sake.
6 Comments
Jim Halloran
Hey, what is with the picture of the pyrite crystals. It is also called “fool’s gold.” Hmm, I wonder if there is a lesson here. Nice looking pyrite picture though.
mprmining
So, it sounds to me like they want mining companies to high grade deposits and not do any exploration or development so that their profits (short term) will be higher. Really great business plan.
Larry J.
I understand Catherine Raw’s commentary from a financial standpoint, she is exactly correct…mining companies can “high-grade” a deposit and realize a nice realized cost for that extraction effort. But unfortunately the “high-gradeable” zones in any given ore body, do not by themselves ususally justify the cost of developing a mine with all it’s infrastructure related cost.
Moving forward, we will see less and less of the easy targets of the past. That is why so many of the new world class projects are taking literally billions of dollars to develop. Mining companies are increasingly finding themselves in more remote locations, often going much deeper underground, and yes after lower grade ore bodies. Let’s not forget that many of these resources are also located in often politically unstable areas, and even in stable climates we have increasing risk associated with rising royalties, taxes, and in many cases “nationalization” efforts.
The comparison made by Ms. Raw with the mining-vs–oil companies is misleading when one understands the dynamics. An oil company can often drill a single well and sit on it for years, whereas in most cases a mining company must continually develop the ore body and extend the infrastructure. Permitting a drill location and setting up a well head can literally take place in weeks, permitting a mine can easily take years. Oil companies often enjoy strong governmental subsidization and tax benefits that mining companies can’t share in.
So all in all, Catherine Raw has provided some very one-sided commentary which doesn’t reflect the actual dynamics of the industry.
Regards,
Larry J.
jerry
Could you have a more negative headline? How about ‘ investor calls for enhanced information’……accuses…misleading…Yes, the aricle is
TI
Why did you pick a picture of pyrite when you try to convince us that you are a Gold expert?
boneafide
Shareholders, so fearful of negative aspects of their investment, have prodded mining companies into issuing gobbledygook instead of forthright accurate reports. There will always be difficulties encountered in business and I totally agree with BlackRock regarding the need for accurate reporting to shareholders and for sane, readily understood industry-wide standard metrics.