“I don’t think the industry has done anything to persuade some of those investors that hold, for example, gold ETFs to buy gold shares instead,” said Neil Gregson, who manages about $5 billion in natural resources equities at JPMorgan Asset Management in London. “Our allocation to gold equities is now down to 20 percent, which is the lowest we’ve been certainly since I’ve been here in the last 2 1/2 years.”
To be sure, while the gold industry has traditionally emphasized cash-cost figures, the other components of all-in costs were available in financial reports, Gregson said. Gold companies have diverged since the 1990s in terms of which cost items they included, Goldcorp CEO Chuck Jeannes said in a Feb. 25 interview.
“What we are trying to do is bring back some predictability and rigor,” he said.
There’s still no universal agreement on the new all-in costs. Members of the World Gold Council, a London-based industry group, are working on issues such as how to treat byproduct revenue, interest expenses and profits on energy hedges, said Agnico-Eagle Mines Ltd. CEO Sean Boyd.
Mining companies are hoping that it’s governments and not just investors who pay attention to the new all-in costs, Gold Fields Ltd. CEO Nick Holland said in a Feb. 4 interview. Gold more than quadrupled in the last 10 years and reached a record $1,923.70 an ounce in September 2011, encouraging some countries to seek a greater share of profits.
Dominican Republic President Danilo Medina said today that a contract for Barrick to develop a mine is unacceptable and must be revised to provide more benefit to the country. Burkina Faso is among countries that have amended royalty and tax regimes.
“It could be positive for getting more realism into governments about how much tax they really should be levying on us,” Holland said. “There’s not the super profits that you’d have them believe you’re making.”