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Buoyed by a new mantra of cost discipline, Canadian gold miners are starting to catch the wave of booming bullion prices after a summer of woe.
From major producers like Barrick Gold Corp., Goldcorp Inc. and Kinross Gold Corp. to junior explorers, gold mining stocks are booming, propelled by a shift in the industry to restrain spending and focus on profits and cash flow, rather than pursue reckless strategies that favoured growth at any cost.
The spot price of gold danced around $1,779 (U.S.) an ounce on Wednesday, or about seven times where it was a decade ago, when central banks were bailing out of the metal. Today, banks are piling back into gold to hedge their U.S. dollar reserves as forecasts for gold prices climb above $2,000 an ounce. And gold stock prices are beginning to catch fire.
Drastic shifts in corporate strategies are helping gold companies and their shares, repairing a disconnect between their valuations and the price of the metal. Risk-weary investors had favoured exchange-traded funds (ETFs) for exposure to gold, rather than shares of the miners themselves.
But the industry made decisive moves in the summer to win back skeptical investors, notably the ouster of CEOs at Barrick Gold and Kinross.
Today, gold companies “have got religion” by emphasizing profitability over growth, asset manager Adrian Day said on the sidelines of the Cambridge House junior mining conference in Toronto last week.
“Six months ago, if a new client came in, I bought him far more ETF than I had ever done before, I just bought 15 per cent ETF right off the bat, because that was a better value than Barrick or Newmont at the time,” Mr. Day said. “Last month, it became the opposite, I just stopped buying gold and started buying the stocks, because they were just so cheap relative to gold,” he said.
Among those riding the wave of new investor interest is Toronto-based Barrick, the world’s largest gold producer that replaced its chief executive officer in June amid billion-dollar cost overruns at its flagship development project in the southern Andes mountains.
Barrick shares traded at $40.65 on Wednesday, or 30 per cent higher than 52-week lows hit in July, when it also shelved projects not deemed economic.
Kinross, which also let go its CEO over the summer, was trading at $10.31 a share on Wednesday, up 44 per cent from May.
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