Gold Mining CEOs: Create Value To Attract Capital In 2018
Editor's Note: View Kitco News' full 2018 outlook coverage
(Kitco News) - For many mining executives, 2017 was a year of consolidation as the sector struggled to gain traction among institutional investors.
The VanEck Vectors Gold Miners exchange-traded fund, seen as a proxy for the precious mining sector, is up 9.5% since the start of the year, underperforming gold, which is up more than 12%, ending the year in striking distance of $1,300 an ounce.
The junior mining sector, as shown in the VanEck Vectors Junior Gold Miners ETD (GDXJ), is the worst laggard, up 7% since the start of the year.
According to some mining CEOs and executives who talked to Kitco News, the goal among all mining companies will be to find value in 2018 and to attract much-needed fresh investment capital to the marketplace.
Institutional Investors Bored With Mining
George Salamis, president and chief executive officer of Integra Resources, said that he has seen the stark contrast in financing this year.
Integra, which sold its Sigma-Lamaque property in Northern Quebec in mid-2017, jumped back into the game in October as it purchased Kinross’ DeLamar property – a gold and silver project in southwestern Idaho.
“Our financing book looked completely different from previous years. In previous financing, we saw 80% interest from institutional investors and about 20% interest from retail investors,” he said. “This time around, it was completely reversed. Institutional money is almost gone from the mining marketplace.”
Chad Williams, CEO of Redcloud Klondike Strike, a mining consultancy firm, said that he expects the funding environment to continue to tighten in 2018 as investors become discriminate as to where they put their money.
“If a mining company has truly something special, they will be able to raise money, but I think the other 90% of the industry is going to suffer,” he said.
How To Create Value In Mining Sector
While there is almost universal agreement that companies need to create value for their shareholders, every company is taking its own approach to the problem.
Darren Blasutti, CEO of American Silver, said that while he is bullish on silver in the long term, his company is currently reducing its silver output and focusing on producing more zinc and lead, which was saw a strong price rallies in 2017. He added that the company’s plan is to preserve silver reserves until prices turn around.
“We don’t believe in producing silver without making any money,” he said. “We have been lucky enough to have deposits with two ores in them and are taking advantage of this strategy.”
While increasing cash flow will help create value for a company, other CEOs are warning that companies need to find cost efficiencies and remain fiscally disciplined.
Ian Ball, CEO of Abitibi Royalty, said that with little investor interest, companies need to focus on their balance sheets and that could mean fewer mergers and acquisitions. He added that producers would be better served developing and exploring their current properties.
“If you have one good mine, focus on that,” he said. “How do you triple your share price when you are a Barrick or a Goldcorp? It’s not an easy answer but I don’t think it’s going out and acquiring more properties because your anchor just keeps getting bigger and bigger and bigger.”
Ball added that his focus in 2018 is to increase Abitibi’s cash flow, which will be used to buy back shares. As of November 2017, the company has repurchased 153,200 shares since it started its program in 2015.
Companies Need To Focus on Innovation
One area that CEOs appear to be in agreement on is the fact that companies need to focus on innovation to help reduce costs and increase production.
According to many mining executives, the sector struggles to compete against more exciting sectors like cryptocurrencies or even marijuana companies. These sectors are seen by new young investors as “cutting edge.”
“It’s a no brainer that the mining sector needs to innovate,” said Williams. “Introducing new technology and new processes will help to reinvigorate the sector.”
Luis Canepari, vice-president of technology at Goldcorp, said he sees innovation as the key to tapping into the new millennial investor, which is why the company remains committed to working with companies to develop sector-disruptive technology.
Salamis added that management is once again using computer learning and artificial intelligence technology at its DeLamar property to help find potential new drill targets to build out the project’s reserves.
That was key technology that helped breathe new life and interest in its former Northern Quebec property.
Innovation will improve mining’s social license
Salamis said while it is important for a mining company to keep an eye on its bottom line, the sector also needs to pay more attention to its social license.
“Finding value in a company isn’t enough,” he said. “People want to know what mining companies are doing to improve their environmental footprint and improve their social license.”
Salamis said that mining companies have to find ways to work with communities and local stakeholders to build trust around a project and be able to move it forward.
Canepari said that it is becoming easier -- thanks to technology -- for mining companies to reduce their environmental footprints. As an example, he added that companies have come a long way in developing processes that reduces water usage.