Videos

Seasoned investment professionals, sector-dedicated analysts, and creative thinkers are at the heart of our business. Get their perspective on today's market climate.

Gold and Precious Metals

Video Transcript

Higher Prices Help Gold Miners Refocus on Profitability


THOMAS BUTCHER: Ima, I understand that you've had a chance to talk with some gold mining companies. How has their mindset changed in the current environment?


IMARU CASANOVA: Yes, the Gold/Precious Metal Team met with about 20 gold mining companies in the month of May. Meeting with that many companies over a short period of time always gives us an opportunity to assess what's happening in the sector. When we have these meetings, I always ask myself: What is the message? What is the main takeaway? I can tell you that this time, the main message that I believe gold miners are sending is that, yes, companies are still very focused on efficiencies and operating improvements and cost savings. At the same time, with the higher gold prices this year, the conversation has also switched back to what are gold miners doing with the resulting increase in cash flow. The conversation transitioned from preserving cash to, once again, how best to deploy that cash.


BUTCHER: How can gold mining companies deploy this additional cash?


CASANOVA: There are different situations for different companies. For those companies still paying down debt, this will remain the top priority. There are other companies that are building mines. For those companies, the extra cash provides a welcome cushion that is very positive, because until recently the market had significant concern over companies' ability finance these projects. For those companies that have paid dividends in the past many expect dividend payments to be resumed or to be increased in this higher cash flow environment.


For most companies, higher gold prices and higher cash flows means the opportunity to add growth to their pipelines. And because their balance sheets are healthier and costs are under control, companies can once again focus on growth. How can they do that? They can focus on growth through acquisitions. Given that valuations are still relatively low, they can buy assets. Or they can do it organically. In the last couple of years, exploration spending had been reduced significantly by most gold mining companies. Now with higher free cash flow, we expect exploration spending to pick up. When that happens, companies can add more resources, they can upgrade resources to reserves, and they can take the opportunity to make new gold discoveries. Also, the projects that had been shelved in the downturn can now be revisited as more financing becomes available.


BUTCHER: But Ima, with higher gold prices, is there any fear in the market that the miners are going to revert to their old ways, especially growth at any cost?


CASANOVA: I can tell you that despite the higher gold prices and despite the richer cash environment, the management teams we met with are very committed to growing profitability and returns, rather than simply growing production. Several of the companies we met with announced that 'a new ounce of gold is only a good ounce of gold if it improves or at least maintains the per-ounce profitability of the company.' Gold mining companies are starting to change the way that they measure growth. We heard free cash flow per share as the growth metric, rather than just production volumes. This is extremely encouraging to us. And we are starting to see a slow and cautious shift from just surviving to thriving. The key word here is "cautious." Management needs to move cautiously. Gold mining companies still need to remain firmly committed to demonstrating a very rigorous capital allocation strategy that is driven and is focused on value creation for shareholders. We think that if the companies can achieve this, it will put them on the radar not just for a sub-sector of gold, commodity, and natural resource funds, but it will put them on the radar of the broader equity market investable universe.


- - - - - - - - - -
IMPORTANT DISCLOSURE


The views and opinions expressed are those of the speaker and are current as of the video's posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. For more information about VanEck Funds, VanEck Vectors ETFs or fund performance, visit vaneck.com. Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.


Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this video. Gold-related investments are subject to risks associated with precious metals, market risk, industry concentration, inflation, foreign securities, frequent trading, short-sales, leverage, and non-diversification.


Investing involves risk, including possible loss of principal. An investor should carefully consider investment objectives, risks, charges and expenses of the investment company before investing. Call 800.826.2333 or click below to obtain a prospectus and summary prospectus which contain this and other information. Please read the prospectus and summary prospectus carefully before investing. A Fund prospectus is available at vaneck.com.


No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation. © Van Eck Securities Corporation.


Van Eck Securities Corporation, Distributor
666 Third Avenue, New York, NY 10017