Canada's big gold miners are under siege in the markets, their shares tumbling even as bullion rides high, and they're vowing to fight back.
"I'm a shareholder and my family is a shareholder, and we're determined to change that around," Tye Burt, chief executive officer of Kinross Gold Corp. , declared Wednesday, referring to the company's languishing stock price.
Mr. Burt and others in the industry are lamenting the gap between the value of gold stocks and the price of bullion, which is holding near-record highs after a surge that is almost a decade old now.
Kinross shares are down 60 per cent in the past eight months. Barrick Gold Corp. , the world's biggest producer, has seen its stock sink 34 per cent since September, while smaller rivals such as Yamana Gold Inc. and Iamgold Corp. have suffered declines of 27 per cent and 55 per cent respectively from their 52-week highs.
"We recognize that the past period has been trying for our shareholders," Mr. Burt said. "And we recognize that progress never happens fast enough for investors – it doesn't for management either."
Shares of Canadian gold producers are so beaten down that most would argue they're cheap to buy, but investors looking for exposure to the gold price are having trouble seeing equity as the best route to take.
"There is nothing more frustrating than being right on the general theme, but actually not making any money for investors," said Adrian Day, who runs a boutique asset management firm under his own name.
Gold company executives know it too, from giants such as Barrick and No. 2 producer Goldcorp Inc. to their mid-tier peers.
After reporting first-quarter earnings, Goldcorp chief executive officer Chuck Jeannes said the market was no longer rewarding performance as it used to.
"Clearly, over the last two years or so, the market has not been willing to pay for the increased cash flow and earnings that we've generated based on rising gold prices," he said.
Barrick made statements similar to Mr. Burt's at its annual general meeting last week, assuring shareholders that eventually the market would begin to value a production pipeline that will add significantly to cash flow in coming years.
Mr. Burt sees the gold price continuing strong for some time, even as others see no relief in sight for gold company stocks until investors start valuing the potential for profit and stop viewing gold as a defensive play amid tumultuous global markets.
"The main reason people have been buying gold is fear," said Mr. Day, adding investors prefer to seek exposure to gold through exchange traded funds that do not expose them to the risks of investing in a miner.
"When profit takes the place of protection, then people will turn to the stocks again."
Mr. Burt noted markets are risk-averse, reacting to the escalating costs faced by miners in areas ranging from energy and commodities to labour.
Kinross has moved to sequencing its capital expenditures to better absorb rising costs, tackling its three monstrous projects one at a time.
Those plans, Mr. Burt said, would not be easily derailed. The company is sitting on about $1.5-billion (U.S.) in cash and gold prices would have to fall to $1,200 an ounce, from about $1,600, for spending to slow and for Kinross to have to review its dividend policy.
Sean Boyd, who heads Agnico-Eagle Mines Ltd. , said he was confident the industry would return to the gold equities.
"Things don't stay the same forever. Things do change and we think that there will come a time when the valuations move up, and the equities start to outperform the bullion and the question for an investor is, do you try to time it and jump in when that turn happens, or do you position yourself now in businesses that are actually quality gold businesses and just wait," Boyd said after the company reported earnings in late April.
Mr. Burt led Kinross to the largest acquisition in the company's 19-year history in the summer of 2010, when it bought Red Back Mining Inc. for $7.1-billion.
While the deal won it possession of the massive undeveloped Tasiast gold deposit in Mauritania, it also landed it with a major headache as the No. 3 Canadian gold miner was forced to write down $2.49-billion on the project in the biggest loss in its history amid soaring costs and changing project parameters.
For the first quarter, Kinross, which reports in U.S. dollars, reported adjusted net earnings of $203.1-million, or 18 cents a share, representing an increase of 16 per cent over the first quarter a year ago, but below consensus estimates of nearly 21 cents a share.
"With patience, we will generate value in the months ahead," Mr. Burt assured investors.