Gold chiefs at odds over lag in shares

NEWCREST and BlackRock - the world's biggest mining fund manager and Newcrest's biggest shareholder - will have to agree to disagree on the reasons why gold stocks have lagged the surge in gold prices.

By InvestSMART · 28 Oct 2011

By InvestSMART ·
28 Oct 2011

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The BlackRock managing director, Evy Hambro, said this week that the disconnect between gold's rise and gold share prices reflected meanness by the companies when it came to their dividend payout ratios.

The Newcrest managing director, Greg Robinson, has different ideas.

Speaking after the group's annual meeting in Melbourne yesterday, Mr Robinson agreed there was a disconnect of as much as 15 to 20 per cent across global gold stocks.

But rather than blaming dividend yields, Mr Robinson pointed to more structural issues at play.

"Short-term money, when it is attracted to gold, goes in to physical [gold] and exchange-traded fund markets," he said.

"But I think that when you are looking at the medium to longer term, you find that stocks will reflect longer-term [gold] prices.

"If prices hold and people are forecasting higher prices, you will see the stocks recalibrating in price." Mr Robinson defended Newcrest's dividend record. For the June year, Newcrest paid a 30? a share ordinary dividend and a 20? a share "special" dividend. The total doubled last year's total of 25? a share.

"We are at the higher end of dividend payments by gold companies," Mr Robinson said.

"We are roughly at a 1.5 per cent yield with that normal and special dividend that we paid - and that would be among the top in the gold industry."

But he acknowledged that all shareholders investing in resources stocks were looking for better dividends. "I think Evy is just illustrating that," Mr Robinson said.

Newcrest does not forecast gold price moves but Mr Robinson said he was "positive on the gold price in the medium term".

"I think that we are looking at a very strong environment for gold for a considerable future," he said.

The highlight of the annual meeting was Newcrest securing one of the highest "yes" votes (96 per cent) in the reporting season for the adoption of its remuneration report, despite the Australian Shareholders Association calling for a protest vote.

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Frequently Asked Questions about this Article…

Why have gold stocks lagged the recent rise in the gold price?

The article explains two views: BlackRock’s Evy Hambro says the gap reflects low dividend payout ratios from miners, while Newcrest’s managing director Greg Robinson points to structural factors — short-term money flows into physical gold and ETFs, with stocks tending to follow medium-to-longer-term gold price trends.

What did BlackRock say about gold companies and dividend payouts?

BlackRock’s Evy Hambro argued the disconnect between rising gold prices and lagging gold stocks reflects “meanness” by companies on dividend payout ratios, suggesting investors are penalising miners that don’t return more cash to shareholders.

How does Newcrest explain the lag between gold prices and gold share performance?

Newcrest’s Greg Robinson says short-term investor money prefers physical gold and exchange-traded funds, and that gold stocks typically recalibrate to reflect higher gold prices over the medium to longer term if prices hold and forecasts remain elevated.

What dividends did Newcrest pay and how does the company defend its dividend record?

For the June year Newcrest paid a 30-a-share ordinary dividend and a 20-a-share special dividend — doubling last year’s total of 25-a-share — and says this level produces roughly a 1.5% yield, which it describes as among the higher dividend payments in the gold industry.

Does Newcrest forecast future gold prices, and what is its outlook?

Newcrest does not officially forecast gold price moves, but Greg Robinson said he is positive on the gold price in the medium term and expects a very strong environment for gold for a considerable future.

What should everyday investors make of short-term flows into gold ETFs versus mining stocks?

The article suggests short-term inflows often go to physical gold and ETFs, which can leave mining stocks lagging. Investors should recognise that stocks may take longer to reflect higher gold prices and assess whether they prefer direct exposure (gold/ETFs) or potential longer-term upside from mining companies.

How significant was investor support for Newcrest at its annual meeting?

Newcrest secured one of the highest ‘yes’ votes (96%) during the reporting season for the adoption of its remuneration report, despite a call for a protest vote from the Australian Shareholders Association.

How does Newcrest’s largest shareholder view the company and the sector?

BlackRock — described as the world’s biggest mining fund manager and Newcrest’s largest shareholder — has publicly questioned miners’ dividend policies as a reason for the sector’s underperformance, while Newcrest’s management disputes that as the main cause.