One Factor That Creates Value For Shareholders - Shareholder Gold Council
(Kitco News) - There are a variety of criteria investors can look at when evaluating the potential of a mining company and the newly formed Shareholder Gold Council, backed by billionaire investor John Paulson has added one more to the list.
In the Council’s inaugural report on the mining sector, the group said that its research shows companies whose chief executive officers and board chars with high ownership stakes have seen the best returns for investors.
“The reason is simple - by having similar financial incentives as the equity owners, management teams and boards are incentivized to make decisions to maximize the corporation’s per-share value. The analytical findings of this report justify shareholder demands for those calls for more alignment,” the report said.
Chair of the shareholders council Christian Godin said in a telephone interview with Kitco News, said while many investors have been disappointed with the lack of value creation in the sector, the report shows that there is still plenty of potential and value.
The research noted that the companies with the highest CEO and chairman ownership showed the best returns in the last five years. For example, the third top performing producer, Kirkland Lake, saw shareholder returns of 256% in the last five years. Eric Sprott, chairman of Kirkland Lake owns 381 times more shares, in value, compared to his compensation in the last five years.
Pierre Lassonde, chairman of Franco-Nevada owns 160 times more shares than the amount of compensation and his company has seen returns of 61% in the last five years. The company’s chairman, Bill Beament, owns 10.6 times as many shares of Northern Star compared to his compensation.
Over the last five years, Northern Star was the top performing gold company the report sampled, seeing shareholder returns of 869%.
Godin said that their research shows that CEOs and board executives with at least five times the numbers of shares compared to their compensation would be expected to outperform gold prices in the long term.
“Anything less and the likelihood is that the company would underperform,” he said.
On the downside, Yamana Gold was the worst performing company, with shareholder returns declining 73%. The company’s chair, Peter Marrone, owns 0.1 times as many shares compared to his compensation.
Kinross’s chairman John Oliver has the least amount of “skin in the game,” holding zero shares of his company compared to his compensation. In the last five years shareholder value has declined by 45% in the last five years.
The report comes three months after the creation of the Shareholder Gold Council, which is backed by gold sector heavyweights including Tocqueville Asset Management fund manager John Hathaway and billionaire investor Naguib Sawiris.
Godin said that mining executives need to do better when it comes to managing costs to return more value to shareholders.
“You can’t control the price of gold but you can control costs,” he said. “Executives also need to keep an eye on environmental, social governance risks.”