Gold giants battle to lure back investors who fled industry
What’s better than GOLD?
In the wake of two mega-mergers that have reset the gold industry, one small detail has delighted Mark Bristow, Barrick Gold’s CEO: his company’s ability to secure the rights to trade its stock under the ticker GOLD in New York.
Barrick and newly merged Newmont Goldcorp are in a race to lure back generalist investors who fled the gold sector years ago. While Newmont has the advantage of size — it’s bigger by market capitalization and production — having the ticker GOLD certainly can’t hurt in the fight for brand recognition.
“If you want to be relevant in this world, you’ve got to attract a broader base of investors,” Bristow said. “A combination of the GOLD, and revitalizing the Barrick brand itself, is an exciting thing.”
Welcome to the gold industry’s new reality. For years, the two companies ran neck-and-neck on gold production, with Newmont generally lagging. Then Barrick executed its $5.4 billion acquisition of Randgold Resources in September and Newmont followed up in January by buying Goldcorp for $10 billion, making itself the world’s largest gold miner by a comfortable margin.
Now the two giants are locked into a new kind of battle, for the hearts and minds of investors.
“If you’re a generalist fund manager there’s a huge gap between these two and the rest,” said James Bell, an analyst at RBC Capital Markets. “Why bother with the headache of understanding the rest of these companies and the challenges they have?”
Bristow, the latest in a string of high-profile Barrick leaders from its late founder Peter Munk to Executive Chairman John Thornton, said in a Thursday interview that the new Barrick doesn’t “look at anyone in the gold industry as competitors.”
Instead, Bristow said, “we have much more ambitious comparatives to beat. We want to position ourselves as the ‘go to’ resource company.”
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Meanwhile, Gary Goldberg, Newmont’s CEO since March 2013, is more low-key. For years, Goldberg said he didn’t care about being the world’s largest gold miner. He then went on to quietly claim the title, fend off a hostile bid by Barrick, and extend his lead with the Goldcorp merger.
“When it comes to a gold company, it’s not just about investing in the potential to join in a price rise," he said. "It’s also the fact that we’re disciplined in how we’re focused on returns.”
Goldberg is retiring this year. His successor, Tom Palmer, has a strong mining pedigree, but is less of a public figure than Bristow, whose colorful quotes have regularly established him as part of the news cycle. He and Bristow will need to cooperate as they implement a sweeping joint venture in Nevada.
Generalist investors want companies that are “good, steady, stewards of shareholder value,” Goldberg said, arguing that Newmont stands out versus the rest of the pack, especially in North America. He cites the company’s quarterly dividend as a case in point.
The Greenwood Village, Colorado-based miner has raised its dividend three times since 2016 as part of its effort to woo back generalist investors. At 14 cents, the current payout is a full dime more than Barrick’s.
Newmont is also the only gold miner on the S&P 500, an advantage Bristow acknowledges — but Barrick has the GOLD ticker on the NYSE previously carried by Randgold’s American depositary receipts. Both executives extol the strength of their assets, their liquidity, and their ability to deliver long-term value to shareholders.
While the two are clearly the dominant producers in the space, dwarfing smaller rivals, they remain relatively small compared with other natural resource companies. Unlike the world’s best copper, coal and iron ore deposits — the giant Chuquicamata copper mine in Chile has been operating since the 19th century, and has at least another 50 years of life — gold deposits are relatively small and short in life.
Replacing the ounces of gold mined each year is already a challenge for Barrick and Newmont, especially from deposits with a high enough concentration of the precious metal to be economically resilient when prices fall.
The question now is how best to build investor interest moving forward.
Badly run, bloated with debt, and heavy with potentially unprofitable projects, the sector scared away most of the generalist investors, years ago. More recently, much of the investor support has instead been funneled into ETFs — in particular SPDR Gold Shares, the biggest bullion-backed ETF — and, more recently, streaming and royalty companies.
“The challenge when you talk to the big generalist funds is that you know, going in, they don’t need to own a gold stock,” said Sean Boyd, the CEO of Agnico Eagle Mines. “They’re just looking for a solid underlying business that gives them more leverage, potentially," than ETFs.
But there may be light at the end of this tunnel. Boyd, Goldberg and Bristow all say they’re seeing renewed interest from generalist investors, and Bristow says he’s been approached by a number of state-owned pension funds in recent weeks.
“These funds are getting bigger and bigger," he said. “And they too have to find places where they can get a sizeable exposure, and it moves their dial.”