GOLD NEWS

Gold miners need a reality check – BlackRock

BlackRock's Evy Hambro and Catherine Raw say that gold miners need a new way of reporting and better cost discipline.

Author: Geoff Candy
Posted: Wednesday , 05 Dec 2012

LONDON (Mineweb) -

Blackrock’s Evy Hambro and Catherine Raw made it clear during Mines and Money London’s keynote address on Monday morning that gold miners need a reality check on the way in which they report their costs and margins.

Pulling no punches, the two fund managers pointed out there had been significant multiple erosion in the gold sector over the past few years. But, while they are clearly dissatisfied with recent performance (and this is not the first time they have said so) they did admit that there were some pleasing signs of a change in attitude among some players, particularly in the mid-tier space – although quickly added that a great deal was still needed.

"The worst thing that could happen to the sector right now," Hambro said, "is for the gold price to rise and take the pressure off the miners."

"It would be great if all the hard decisions were taken and then the gold price went up."

One of the major problems identified by the two fund managers was the manner in which the sector currently reports on costs.

"It makes no sense to try and mislead “people like us” because “all you are doing is misleading governments who turn around and then levy higher royalties,” Raw said.

Asked about the role of standardised reporting methods, Raw was quick to add that much more could be done in this area and, importantly, it should be being led by the industry.

“These companies need to be sitting down with auditors and figuring out a better way to do this.”

But, it is not just the reporting of costs, however, over which the two fund managers have taken issue.

It is the drive for growth “for growth’s sake” (a saying that has definitely become somewhat of a catch phrase within the sector of late) that the BlackRock managers argued against as well.

“The industry has always faced the challenge of finite assets.” Hambro said, not only is there a finite number of ounces in the ground, there is also a finite capacity for the mills and the smelters. If you change your price assumptions upwards all you end up doing is forcing more, lower-grade material through the mines and, as a result, your margins go down.

“If the [gold] industry hadn’t chased lower grades, would share prices be as low as they are now?” Hambro asked, before answering his own question with, “Our belief is that they would be much higher because gold miners would have made a lot more money.”