The world’s top gold miners are retrenching after COVID-19 related shutdowns despite record prices for the precious metal, with most mine executives prioritising investor returns over production growth.
Gold prices have fuelled a cash surge for miners, with top- and mid-tier producers holding roughly $5 billion in cash as of 30 June, according to Scotiabank estimates.
But interviews with executives, analysts and fund managers show miners are hesitant to spend on pricey projects and tap marginal deposits that require sizeable capital and take years to break even, Reuters reports.
Regulatory filings show that seven out of ten of the global gold miners, including Newmont, the world’s biggest gold miner, Canada’s Barrick and South Africa’s Gold Fields, have cut planned output for the year by 7%, citing coronavirus-related shutdowns.
The caution is a reversal from the 2011 gold price boom, which prompted buyers to overspend on acquisitions and led to billions in impairments when prices crashed in subsequent years. Companies that have won back investor favour are fearful of making similar mistakes.
“The real trap in the gold industry in the past was chasing volume,” Newmont chief executive officer Tom Palmer told Reuters.
Newmont’s budget this year is $1.3 billion, about half the levels seen in the previous cycle.
Gold Fields said it wasn’t rushing to change cut-off grades, the minimum grade that can be economically mined, despite the higher price.
“It’s not easy to just turn the ship in a different direction,” Nick Holland, chief executive of Gold Fields, told Reuters, referring to boosting output with the higher price.
Barrick’s long-term price assumption remains unchanged at US$1,200, underpinning a growing dividend and debt reduction, its chief executive, Mark Bristow, said.
“No one made any real money” in the last cycle, he said at the Mines and Money Online Connect virtual conference last week.
Growth vs returns
The spot price of gold has climbed more than 500% over the past 20 years, according to Refinitiv data. Global gold output, including output from mines and recycling, rose 22%, according to World Gold Council data.
Miners have hiked dividends on the back of those stronger prices, with Barrick raising its quarterly payout 14% last month and Newmont boosting its payout 79% in April. Scotiabank analysts expect the industry’s dividend growth to continue into 2021.
“Companies still need to take a very conservative approach,” said Joe Foster of Van Eck Associates Corp, which holds shares in Barrick and Newmont and expects gold prices eventually to hit US$3,000.
Investors have even threatened to dump shares of companies that don’t prioritise payouts.
“If we get to the point where growth versus returns becomes a decision point, we’ll back the companies paying returns,” said Mark Burridge at Baker Steel Capital Managers, which holds shares in Kirkland Lake Gold, Kinross Gold and others.