When Tye Burt stood before Kinross Gold Corp. shareholders Wednesday, he knew it wouldn't be enough to talk up the company's record quarterly profit on robust gold prices or its aggressive growth plans.
So, the Kinross chief executive officer cut to the chase, addressing head-on the big issue facing the company right now - its suffering stock price.
While the price of gold surges to record highs above $1,500 (U.S.) an ounce, many major miners that produce it aren't seeing the same run-up in the value of their stocks.
In fact, some companies such as Kinross are trading in the opposite direction as gold. As of Wednesday's market close, Kinross shares have fallen about 20 per cent so far this year, while the price of gold has risen by about 7 per cent. Kinross shares, however, rose 5 per cent Wednesday after its first-quarter results beat analyst expectations.
"We know it's frustrating to see the stock underperform when the gold price has been reaching new highs," Mr. Burt said at the company's annual meeting in Toronto. "It is frustrating for me as well, not just as the CEO, but as a shareholder because most of my net worth is tied up in the company's stock."
Weighing on Kinross's stock in recent months is the $7.1-billion bet it made on Africa-focused Red Back Mining Inc., a transitional deal for the company that also diluted its stock and increased its geopolitical risk. Still, Mr. Burt maintains buying Red Back is a long-term move and its value has yet to be recognized by the market.
Like most miners, Kinross is struggling to find growth amid a scarcity of global reserves and resources. That constant hunt is what prompted it and other major gold miners to make bold acquisition moves in recent months.
Take, for instance, Barrick Gold Corp.'s foray deeper into copper with a rich $7.3-billion offer for Equinox Minerals Ltd., which has assets in Zambia and Saudi Arabia. Barrick is also feeling the heat, with investors driving down its stock by about 13 per cent since the deal was announced last week.
Meantime, the price of gold continues its record-setting run as investors bet on the physical metal, seen as a hedge against inflation and a counter currency, rather than plunk money into the companies that produce it.
For some, the divergence between gold stocks and the metal itself signals investors don't see the physical metal moving much higher.
"I think gold maybe moved up too quickly for investors to believe it's sustainable," said John Zechner, chairman of Toronto-based money management firm J. Zechner Associates Inc.
For years, gold mining stocks outpaced gold futures as they generated higher profits from the rising price of bullion, in part by cutting costs. But with the onslaught of new gold investments such as exchange-traded funds, gold miners have more competition for investors. Producers are also facing higher costs today, owing to inflation and rising energy prices.
Miners also face geopolitical risk as they venture into new regions to find future production.
"There is no geopolitical risk to gold bullion buying," said Yamana Gold Inc. CEO Peter Marrone.
He believes gold stocks will outperform the metal again once the price stabilizes, which he believes is starting to happen. "Then it will become apparent that the equities are generating significant margins," Mr. Marrone said.
Vancouver-based Goldcorp Inc., the world's second-largest gold company, is one of very few producers whose stock has risen in step with the price of gold so far this year, at 6 per cent as of Wednesday.
"That is the way it should be" said Goldcorp CEO Chuck Jeannes, citing its growth plans and leverage to the gold price in its cost structure.
After market close on Wednesday, Goldcorp reported a 69-per-cent increase in first-quarter profit compared with the same period last year, while the average realized gold price increased 26 per cent over the 2010 first quarter, to $1,394 an ounce.
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