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Gold investors to miners: 'Appeal of mining equities escapes generalist investors'

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(Kitco News) Despite seeing record-breaking interest in the physical gold space as well as the gold-backed ETFs market, the appeal of gold mining stocks still escapes generalist investors, major gold investors wrote in an open letter to the mining industry.

Prominent gold investors from well-known firms, including VanEck Funds, Sprott, Shareholders’ Gold Council, Paulson & Co. Inc, Franklin Templeton and more, penned an open letter to urge the gold mining industry to continue to change for the better, offering advice on how to improve the perception of the industry as well as make it more attractive to investors.

“Despite the strong performance of precious metals mining equities in 2020, investor flows into active and passive fund strategies have been lackluster. In contrast, flows into physical metals and related ETFs have been record breaking. The contrast suggests that the appeal of mining equities remains limited to specialist funds and has escaped the attention of generalist investors,” gold investors wrote. 

The open letter was released on Sunday — the first day of the Denver Gold Group’s Americas conference, which is a key annual conference in the gold mining industry. 

Investors claimed that mining stocks are still cheap in comparison to how high gold price rose this year. 

“Despite strong performance, mining shares are still episodically inexpensive. We believe that adoption of these suggested measures will improve current low equity valuations by attracting a wider audience of generalist investors and thereby lower the industry’s cost of capital to the benefit of all stakeholders,” the letter said. 

The areas of improvement highlighted in the letter included corporate governance, shareholder alignment and compensation as well as strategy and execution. There were a total of 16 suggestions presented by the signatories of the letter. 

“Though the performance of gold mining stocks has been noteworthy recently, we believe that performance continues to fall short in the areas of corporate governance, alignment of incentives and strategic vision & communication with investors,” the letter noted.  

Shareholder payouts is one of the topics that will be carefully observed in the mining industry this year as some miners become flushed with cash in light of this year’s gold rally. 

Some of the letter’s suggestions included “establish[ing] strict term limits for directors who do not have meaningful stock ownership,” “hav[ing] a clear disclosed process for selecting directors that includes meaningful dialog with shareholders,” “includ[ing] per-share value metrics in calculating compensation for management teams and incorporate those metrics in presentations to investors,” “defining] what metrics company management teams will be assessed upon for annual compensation at the beginning of the year (rather than retroactively when circulars are released one year later),” and “impos[ing] strict maximum quantity and minimum time thresholds for how much stock insiders can sell when exercising options.”

The letter had a total of 24 signatories, including Karim Nasr, Group CEO of La Mancha Holding of the Sawiris family.

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