Gold mining executives came in for some criticism on the first day of this year’s Mines & Money conference, for among other things a lack of foresight and reaping too much of the benefit.
Gold mining executives came in for some rather harsh criticism on the first day of this year’s Mines and Money conference in London.
US Global’s CEO and CIO, started things off in his keynote address by questioning whether or not it was chairmen, not the CEOs, 20 of whom have so far been replaced in recent months, that should be replaced. If, as he said, you have had three different CEOs for example, but the same chairman, and the company continues to underperform, perhaps it is not the CEO that should go.
This was followed by Randgold Resources CEO who said that the sector’s “characteristic lack of foresight” had left it equally as unprepared for the greatest upturn in its history, as it had been for the downturn that preceded it.
But, it was the third commentator to step up to the plate was CEO at Craton Capital, that perhaps had the harshest words for executives. The fellowship among, shareholders, labour, government and executives within mining generally has broken down.
To prove this point, and using the gold sector as a proxy, Bachmann showed that over the last 10 years, while shareholders have seen a 158% return, government’s over the same period have seen a 1,488% increase in their share, while the direct packages of executives have risen 1,032% over the same ten year period.
“There is a huge disconnect between the shareholders and the executives,” Bachmann said, “there is too much fat cat behavior, too much free-riding.”
The mining cycle peaked at the end of last year,” Bachmann told the Mines and Money audience, “There is a direct correlation between mining expenditure and costs and that cycle has turned.”
According to Craton’s figures, the most recent mining investment cycle has been the biggest in history, with money spent on mining investment ballooning 274% over the 10 years. Importantly, however, of the whole investment pie, 75% of the spend was made by the world’s top 16 miners and these miners have begun to cut costs significantly.
“A lot of investors have the perception that costs are linear, Costs can actually come down, we think that, in the gold industry, was the peak in the cost cycle for gold and over the next 2 to 4 years we expect costs to come down aggressively.”
If the changes seen so far this year are to be sustained, however, then the excessive behavior of management teams, especially in comparison to the results for other stakeholders needs to change. “that relationship needs to come into balance,” he says.
But, it is not just the executives who are at fault. “Shareholders have been far too passive,” Bachmann chided. “In the early 2000s shareholders were calling for growth saying: ‘you must invest, produce, create capacity’, and shareholders underestimated how much it actually takes to do that.”
He added, “It is absolutely incomprehensible, that there are many companies who stuffed things up for their shareholders but, their approval ratings were 95%.”