Gold mining companies are taking a cautious approach despite high gold prices

September 14, 2020

Even as gold prices continue to hold strong at around $2,000/ounce the world’s top gold mining companies are keeping a cautious eye on the future with many executives prioritizing investor returns over production growth.

Based on interviews with executives, analysts and fund managers, Reuters reported that most gold mining companies are hesitant to spend on pricey projects and tap marginal deposits that require sizeable capital and take years to break even, despite the fact that the price of gold has soared 30 percent in 2020.

Reuters reported that seven out of 10 of the global gold miners, including Newmont, Barrick and South Africa’s Gold Fields, have cut planned output for the year by 7 percent, citing COVID-19-related shutdowns, regulatory filings show.

The caution is a reversal from the 2011 gold price boom, which prompted buyers to overspend on acquisitions and led to billions in impairments when prices crashed in subsequent years.

Companies which have won back investor favor are fearful of making similar mistakes.

“The real trap in the gold industry in the past was chasing volume,” Newmont Chief Executive Officer Tom Palmer told Reuters.

Newmont’s budget this year is $1.3 billion, about half levels seen in the previous cycle.

Gold Fields said it wasn’t rushing to change cut-off grades, the minimum grade that can be economically mined, despite the higher price.
“It’s not easy to just turn the ship in a different direction,” Gold Fields CEO Nick Holland told Reuters, referring to boosting output with the higher price.

Barrick’s long-term price assumption remains unchanged at $1,200, underpinning a growing dividend and debt reduction, CEO Mark Bristow said.

“No one made any real money” in the last cycle, he said at the Mines and Money Online Connect virtual conference last week.
The spot price of gold has climbed more than 500 percent over the last 20 years, according to Refinitiv data. Global gold output, including from mines and recycling, rose 22%, according to World Gold Council data.

Miners have hiked dividends on the back of those stronger prices, with Barrick raising its quarterly payout 14 percent last month and Newmont boosting its payout 79 percent in April. Scotiabank analysts expect the industry’s dividend growth to continue into 2021.

 

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