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Gold miners risk being 'barbarous relic,' warns BlackRock

Barrick’s North Mara gold mine in northeast Tanzania.

Brookes/Africa Barrick Gold

Gold miners risk becoming a "barbarous relic" to equity investors unless they return more money to shareholders, a leading precious metals investor has warned.

Evy Hambro, who manages the emblematic commodities funds of BlackRock Inc. that together have more than $7-billion (U.S.) in gold-related assets, said the gold mining industry had focused on growing production at the expense of increasing profits.

The warning comes after the share price of Barrick Gold Corp. fell to a 20-year low last week, losing its crown as the world's largest gold miner by market value to Goldcorp Inc.

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"Gold miners will become a barbarous relic without change," he told an audience in London as BlackRock celebrated the 25th anniversary of its flagship Gold & General Fund. The vehicle, with has $2.5-billion in assets alone, is the world's largest of its kind.

John Maynard Keynes, one of the most influential economists of the 20th century, famously called the gold standard a "barbarous relic." Although Mr. Hambro defended gold strongly, he criticized the miners who extract it. "Gold mining managements have done a poor job of delivering value," he said.

Mr. Hambro, one of the most influential investors in the natural resources sector, complained that gold miners had been "care free" financing their expansion by issuing shares over the last decade of booming gold prices. As a result, profitability per share has fallen, hurting long-term shareholders, he said.

The share price of the world's top-five gold miners has declined faster than the price of gold since the beginning of the year as companies suffer from rising labour costs, budget overruns in new projects and lower ore grade in mature pits.

Gold prices have dropped 12 per cent since January, but in the same period the shares of Toronto-listed Barrick have fallen 44 per cent.

The other miners in the top five of the industry's ranking have fared little better. Canada-based Goldcorp has suffered a 20 per cent drop; New York-listed Newmont Mining has seen its share price down nearly 32 per cent; Sydney-listed Newcrest Mining is down 27 per cent, while Johannesburg-listed AngloGold Ashanti is down 37 per cent.

Mr. Hambro said there were signs of change within the mining industry, with some companies promising to boost dividends after listening to shareholders' concerns.

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Over the last ten years, the miners' problems had been masked by an almost constant rise in gold prices. The precious metal rallied from $250 (U.S.) an ounce in mid-1999 to a nominal all-time high of $1,902.59 an ounce in September 2011. But last month gold prices suffered their biggest one-day fall since the 1980s, dropping to $1,321.35 an ounce, the lowest since January 2011. The sharp price correction triggered a much larger drop in share prices of top gold mining companies.

Gold prices has recovered since then, rising more than 10 per cent to $1,470 on Wednesday on the back of strong physical demand in China and India. But the shares of the gold miners have yet to recover from the selling.

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