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Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Reports that AngloGold Ashanti Ltd. is considering a London listing provides some festive cheer to a city that’s lost its way as a home for gold miners.
While Toronto, Johannesburg and Sydney have long hosted the biggest producers, London vies with New York as the world’s premier gold trading hub and its financiers have bankrolled the industry since the development of South Africa’s giant gold fields more than 130 years ago. When junior gold miners flocked to the city in the early 2000s, a renaissance seemed at hand.
That promise hasn’t been realized as companies from Petropavlovsk Plc and Acacia Mining Ltd. to Centamin Plc struggled to reach their potential. Star performer Randgold Resources Ltd. will exit next year after its acquisition by Barrick Gold Corp., capping a slump in the market value of London-listed gold and silver miners. That’s left fund managers struggling to find liquid gold stocks as the bullion price languishes.
“There has been a lot of value destruction in the sector,” said James Bell, an analyst at RBC Capital Markets in London. “Investors are saying: “not only do I have no conviction on where the gold price is going, but also these companies are fundamentally high risk.””
When Randgold delists, the combined market value of London’s gold and silver miners will drop to less than half the 30 billion pounds ($38 billion) of six years ago.
Just over a decade ago, Petropavlovsk was worth the same as Randgold and went on to peak at more than 2 billion pounds. Today its value has slumped to just 190 million pounds as the Russia-focused producer is weighed down by crippling debt and over-ambitious expansion plans.
Barrick-controlled Acacia came to London amid hopes of emulating Randgold’s success in Africa, but was hobbled by operational failures and an increasingly bitter dispute with Tanzania’s government. The company’s market value dropped by two-thirds since its 2010 listing and there is speculation the Randgold deal will prompt Barrick to buy back the shares in Acacia that it doesn’t already own.
Still, the departure of Randgold — the best performing stock in the U.K.’s FTSE this century — leaves a gap for other producers to woo investors, according to RBC.
Just last month, Resolute Mining Ltd. which is listed in Australia, said it would sell shares in London next year as it increases its exposure to Africa.
The biggest prize for London could be AngloGold, the world’s third-largest gold producer. While no final decision has been made, the company favors a London listing and has been discussing the plan internally and with advisers, according to people familiar with the matter. The Johannesburg-listed company probably won’t move before 2020, as it may need to exit its South African operations first, they said.
Certainly, there is investor appetite for gold stocks, RBC’s Bell said.
“There is an opportunity,” he said, “But it has to be the right company and it has to be the right size.”
(By Thomas Biesheuvel)
