COMING TO TERMS WITH COSTS
JOE FOSTER, PORTFOLIO MANAGER: Gold companies have been struggling to control costs for several years now, and the costs have been driven by factors that are really beyond their control: a shortage of labor, high energy prices, materials and equipment. Costs have been rising. They have done a poor job of guiding the markets. The costs have been rising more than expected, and going forward, that's what I am seeing in these companies, is getting a handle on the costs, and doing a better job of guiding the market, so they don't miss expectations going forward. In addition, I think we'll look back on 2012 as a peak in the cost cycle for these mining companies.
Among the major mining companies, we have seen some management turnover; a couple of CEOs have lost their jobs due to poor share price performance, and the companies are finally realizing that we cannot continue as we have. There needs to be a different focus from management.
RENEWED FOCUS ON PROFITABILITY
That change in focus has been to shy away from the growth that they have always promoted, because they really have not delivered the growth that has been promised in the past. Instead of promising on something they cannot deliver, they are looking at profitability now and return to shareholders, return on investment, and return on capital: various profitability measures. If their projects and their mines do not measure up to certain thresholds, then they will scale back, re-engineer, or eliminate some of these projects in order to produce a higher bottom-line profit. That is a trend that we see as very positive in the industry.
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