Patience is a virtue that gold investors know all too well.
Over the first few weeks of June, as the markets reacted to a seemingly daily dose of trade rhetoric and the implications of potential rate cuts from the U.S. Federal Reserve (Fed), gold rallied and teased long-term investors (or at least those invested over the last five years). Gold trended towards the $1,365 resistance level and appeared to be on the way to its highly anticipated breakout from the range-bound trading it has seen since 2014. But, alas, just as gold approached this crucial level, positive trade headlines emerged, easing short-term investor concern and causing the gold price to settle comfortably back into its established range.
More recently, however, gold finally broke through this crucial resistance level as the Fed insinuated that future cuts may be at play to stimulate the economy. This new guidance follows similar commentary from the European Central Bank, which, taken together with heightened geopolitical tensions, has rekindled concerns regarding macroeconomic and financial risk. As this new backdrop unfolds, perhaps igniting the next gold bull market, the long-term prospects for gold appear bright, due in part to the self-propelled transformation the industry itself has undergone over the last several years with an increasing focus on creating shareholder value rather than pursuing growth at any cost.
Two of the key players in this change joined VanEck at its fourth annual Natural Resources Conference. VanEck was joined by the chief executive officers of two of the world’s leading gold companies: Mark Bristow, President and CEO of Barrick Gold Corporation, and Tony Jensen, President and CEO of Royal Gold, Inc.
Despite the different roles these gentlemen and their companies play in the dynamics of the gold market, what is particularly interesting is the importance they place on innovation and the varied ways it’s evident in the industry.
Barrick Gold Corporation
As the CEO of Barrick Gold Corporation, Mark Bristow is highly qualified to discuss trends across the industry. While creating headlines recently for his direct role in corporate actions in the industry, what is perhaps most overlooked, in terms of innovation, is the management style and corporate philosophy that has propelled his career—from the company he founded, Randgold Resources, to now running the world’s largest gold company, Barrick Corporation, after their merger late last year.
At the conference, Mr. Bristow discussed the two recent corporate actions that he was directly involved with: the aforementioned merger and the joint venture (JV) he entered into with Newmont Mining. In each case, the primary driver, Mr. Bristow said, was that these deals created efficiencies, reduced costs and ultimately benefitted shareholders over the long term. The Barrick/Randgold merger represented the first deal of this magnitude where no premium was included. Similarly, the JV with Newmont to unitize operations in Nevada demonstrated an ability to set aside long-standing differences to listen to what shareholders wanted: there was little benefit to creating just a bigger gold company. Shareholders should be rewarded over the long term from the unlocking of an estimated $5 billion in synergies and joint operations that maximize the cost structure of a mining region with a long production life.
While Mr. Bristow’s innovation in terms of management style has been newsworthy recently, his appreciation for and adoption of new technology should not be overlooked. Barrick’s Kibali gold mine in the Democratic Republic of Congo (DRC) is, Mr. Bristow said, the most automated gold mine on this planet today. Set in the middle of the jungle, and a combination of open pit and underground (with a vertical shaft), the whole bottom-end of the mine is unmanned.
Significant progress has also been made in Nevada. Now, for the first time in the pits at Goldstrike, there are automated trucks that can drive alongside manned trucks. This is a big step as, normally with automated trucks, nobody is allowed in the operating area.
Most of the mines now also have remote control rigs, and the big drill rigs at the face for development will run automatically over shift changes. This brings with it an enormous amount of time efficiency. Drones help manage geology and exploration, and AI is used in effecting preventative equipment maintenance. From the drill rig and log, to final mine design, supply chain and procurement, nowadays everything is integrated. And this, according to Mr. Bristow, is what is currently being rolled out at Barrick.
Finally, relaying a piece of advice from a mentor, Mr. Bristow said: “If you don’t know where you’re going, any road will take you there”. It’s clear that with more progressive leadership, such as Mr. Bristow’s, and the continued adoption of innovative ideas, the road ahead for gold investors appears more promising.
Royal Gold, Inc.
Tony Jensen, President and CEO of Royal Gold, Inc., started his conversation by clarifying that Royal Gold, which has been in the business for nearly 40 years, is not a gold mining company. Rather, it acquires and manages precious metals royalties and streams. In basic terms, royalty and streaming companies provide financing for gold mining projects in return for a certain agreed upon cash flow or amount of gold produced. Since there are no direct mining operating or capital costs, these companies are essentially investors in mining assets, evaluating the merits, potential drawbacks and risks faced by individual companies, making Mr. Jensen’s comments on value creation and innovation particularly insightful.
As the third largest company of this type, what’s enlightening is that Mr. Jensen’s goal for the company is not to increase assets to become the biggest royalty firm. Mr. Jensen explained that the objective is not size, but to be the most profitable and the most valuable for shareholders. With only 23 employees, the company relies on technical expertise, continuous due diligence and the desire to be financially healthy, so that it can be considered not just by those interested in exposure to gold, but also by general investors. A large component of this innovative philosophy is a committed discipline to mindful growth that includes returning capital to shareholders annually. In fact, the company has increased dividends each year since the first dividend was paid in 2000.
Mr. Jensen described some of the innovations he has seen in his 30 years in the gold industry. More recent developments include the switch from 50 tonne trucks to 400 tonne trucks and the adoption of automated vehicles, which, in conjunction with the larger capacity trucks, bring the cost of production down. This lowers the cut-off grade at the mine sites and increases the reserves in the production profile. Looking ahead, further advancements can be found in the sophistication with which blast holes are now surveyed and blast patterns designed using GPS, sometimes at a distance from the actual holes themselves.
While the gold industry has historically been slow to invest capital in the research and development of new technology, companies today are increasingly finding ways to apply developments from other industries. For example, companies are now also able to retrofit existing equipment, rather than committing to sizeable expenditure for new, more advanced machinery, so as to capture continuous data both to enhance productivity and minimize maintenance costs.
As one attendee noted, technology and a company such as Royal Gold are aligned in that an investment through a royalty or streaming company is essentially an investment in time. As technology and innovation extend the mine life and maximize profits over a longer period, the initial investment rationale and rate of return for investors appear better over time. Mr. Jensen agreed with this idea and went further, explaining “the velocity of knowledge is expanding so fast and some of it is going to filter down to mining.”
The main message received from Mr. Bristow and Mr. Jensen is the need to focus on what is best for shareholders. Since the success of the gold industry lies in this and, whether via technology, business models or strategic planning (to name but three), innovation is one way to achieve this aim, leaders must shed any fears they may have had and embrace it as they would any other way to create true value for shareholders.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Fund holdings will vary. For a complete list of holdings in VanEck Mutual Funds and VanEck Vectors ETFs, please visit our website at www.vaneck.com.
Please note that Van Eck Securities Corporation (an affiliated broker-dealer of Van Eck Associates Corporation) offers investments products that invest in the securities included in this commentary.
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third-party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this communication and are subject to change without notice. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Van Eck Associates Corporation or its subsidiaries to participate in any transactions in any companies mentioned herein. This content is published in the United States. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed herein.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.