GoldMinerPulse Blog - Tipping Point for the Gold Industry

GoldMinerPulse Blog, October, 2012


Tipping Point for the Gold Mining Industry?

In the October, 2012 interview, Kitco Asks Frank Holmes About Gold Miners, Frank Holmes, CEO of U.S. Global Investors, explains why gold stocks haven't been performing as well as bullion and how he believes the industry is at a tipping point.

Holmes observed that mining company executives have been over promising and under delivering. For example, production growth rates of 10% are commonly promised while the actual production growth rate has been closer to minus 2%. Additionally, per share metrics have been degraded through imprudent acquisitions, equity based financing and generous option grants for management -- a group that have been issuing stock options to themselves faster than they have been discovering gold.

Holmes cites the work of Nick Holland, CEO of Gold Fields, in a 31 July 2012 paper titled, What do investors want from a gold mining stock?. The tipping point, is related to the observation that the investors in, and the boards of, the precious metal producers will start demanding better per share performance results.

Alex Black, the President and CEO of Rio Alto, a new gold producer in Peru, talks about delivering on promises to shareholders and all in production costs in a December 2012 interview at Mines & Money in London. Rio Alto has delivered a 10 fold return over the past 3 to 4 years and has started exploration drilling on a new oxide deposit 8km from La Arena, its currently producing mine. Rio Alto is also working to complete a feasibility study in 2013 for the copper zone expansion of La Arena.