A coalition of heavyweight investors is calling on the global gold industry to improve its performance in several key metrics, even as the share prices of many gold companies hit multiyear highs amid a soaring commodity price.
This year, the TSX Global Gold Index, which includes many of the biggest gold companies in the world, is up 41 per cent, driven in large part by outperformance of the price of gold bullion. Historically sought out as a safe-haven investment in times of great upheaval, gold prices recently hit new record highs, driven by extraordinary uncertainty in financial markets owing to the COVID-19 pandemic.
“Though the performance of gold mining stocks has been noteworthy recently, we believe that performance continues to fall short in the areas of corporate governance, alignment of incentives and strategic vision and communication with investors,” the investors said an open letter published on Sunday, on the eve of the Denver Gold Forum, an annual gathering of the biggest companies in the industry.
The 24-member group, which includes portfolio managers with VanEck, Sprott, Mackenzie Investments, CI Investments, Franklin Templeton and Paulson & Co., is hoping the changes it is proposing will help bring back generalist investors to the gold industry and lower the cost of capital.
The group is calling for several changes to management compensation, including ostensibly easy fixes such as asking that performance criteria executives must meet to hit certain pay levels be disclosed at the beginning of the year, rather than current systems in which information is often released 16 months later. The letter also addresses thornier items, such as the need to tie more pay to long-term stock performance, rather than short timeframes.
The Canadian gold industry historically has been known for excessively high compensation compared with other sectors of mining, and often after terrible performance – both long and short-term. One of the most egregious examples in recent years was a US$12-million retirement paid to Goldcorp Inc.’s chairman, Ian Telfer, in 2019, after he oversaw the sale of the company at a 90-per-cent discount to its peak share price.
The letter also called for more disclosure and accountability for boards, and argued that directors should have more skin in the game. For example, directors who don’t have significant share ownership should be subject to stricter term limits. Companies are also being asked to broaden the universe of candidates from which they choose directors.
Jon Case, portfolio manager with CI Investments, and a signatory of the letter, said in an interview he’d like to see more technical experts, such as engineers, metallurgists and geologists, on boards of directors in order to keep a closer eye on management in a very technically demanding industry. Over the past decade, there have been a number of examples of technical disasters at Canadian gold mining companies, such as Guyana Goldfields Inc. and Pretium Resources Inc., that have cost shareholders dearly.
Mr. Case would also like to see boards of directors engage much more frequently with shareholders. Increased communication, he says, could ward off problems that often precipitate proxy battles.
Over the past few years, several Canadian gold companies have been the subject of protracted and nasty proxy battles, including Detour Gold Corp., which earlier this year was acquired by Kirkland Lake Gold Ltd., and Guyana Goldfields, which was bought by Zijin Mining Group Co. Ltd. of China.
“Boards don’t meet with shareholders. They don’t make an effort to reach out to shareholders,” Mr. Case said. “When shareholders are unhappy, it’s very difficult for them to voice that to – ultimately – the people who are supposed to represent them.”
This isn’t the first time a group of influential gold investors has called for big changes in the sector.
At the same Denver conference three years ago, Paulson & Co., a New York based hedge-fund company, lambasted gold miners for close to a decade of terrible returns, urging some of the same changes in the Sunday letter, and later set up a body called the Shareholders Gold Council that has since advocated for improvements across the industry.
Generalists – investors who are sector-agonistic – are slowly wading back into the global gold industry after about a decade of sitting on the sidelines. For example, in August, Warren Buffett’s Berkshire Hathaway Inc. – considered one of the most prestigious generalist investors in the world – announced it had paid US$564-million for a stake in Barrick Gold Corp.
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Niall McGee