Is the Gold Industry Healthy and Competitive again?

July 2018
By Joe Foster, Portfolio Manager and Strategist


The gold mining industry has reinvented itself after years of mismanagement. The chart shows that the return on invested capital (ROIC) for senior gold companies fell below industry peers from 2012 to 2015.

With Improved ROIC, Gold's again Competitive with other Industries  

Source: CapIQ; CIBC World Markets Inc. Report as of May 30, 2018. Past performance is no guarantee of future results. Chart is for illustrative purposes only.

ROIC has since risen to historic norms and is again competitive. A number of factors have contributed to the gold industry’s turnaround.

Balance sheets are healthy again, with debt levels having fallen significantly since 2014. They are expected to continue to fall. Mining costs have declined roughly 25% since 2012 and the adoption of new technologies should allow costs to remain low. As companies have recalibrated their portfolio of mines to focus on properties where they can create the most value, free cash flow yields are expected to rise healthily. They have, in addition, become much better at hitting their targets: In 2017, production and cost guidance were achieved by 76% and 79% of companies, respectively.

About the Author:

Joe Foster has been Portfolio Manager for the VanEck International Investors Gold Fund since 1998 and the VanEck – Global Gold UCITS Fund since 2012. Mr. Foster, an acknowledged authority on gold, has over 10 years of dedicated experience in geology and mining including as a gold geologist in Nevada. He has appeared in The Wall Street Journal, Barron's, and on Reuters, CNBC and Bloomberg TV. Mr. Foster has also published articles in a number of mining journals, including Mining Engineering and Geological Society of Nevada.

The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.

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