THE world’s largest asset manager has laid into gold companies launching share buy-back programmes, describing the practice as “reckless capital allocation”.
Speaking at the FT Mining Summit, Evy Hambro, global head of thematic and sector investing at BlackRock, said gold companies were approving the repurchase of their shares “without any real process”.
“One of the things we’ve been really dismayed about in the last 18 months or so has been the reckless capital allocation towards share buy-backs in gold companies, where we’ve seen enormous amounts of money deployed on buy-backs without any real process,” he said.
“If you look at what companies do when they’re making $1bn investment decisions on building new mines, they do far more work on that than they do on $1bn decisions to buy back their own shares,” Hambro said.
Four of the world’s largest gold miners – Barrick Mining, Newmont, AngloGold Ashanti and Gold Fields – have recently approved share buy-back programmes totalling about $12bn. BlackRock’s largest stake is in Newmont (12%), but it also holds 10% of AngloGold Ashanti and 6% of Gold Fields.
Hambro said there was not enough transparency around the reinvestment frameworks required to build investors’ trust in those plans.
“We’re very dismayed when companies announce big share buy-back plans when share prices are at their peak, and then when the gold price falls back to $4,000 an ounce they stop buying back shares – and the shares are 40% cheaper. Where was the maths in making those decisions in the first place?” he said.
He said gold companies should give themselves the flexibility to be opportunistic in the market rather than commit to a promise they could regret later.
BlackRock is, however, optimistic about the direction of the gold price, notwithstanding its 112% gain over the last three years. This is because government indebtedness would lead to continued depreciation in the purchasing power of paper currencies, he said.
“When you look around the world today, you see the incredible amount of debt governments are carrying and the large ongoing deficits many countries are running.
“You see no plan from governments to fix the problems, beyond doing more and more of the same. To me, that means you’re going to see an ongoing depreciation in the purchasing power of paper currencies.
“The outcome is that real assets rise in price, and gold is probably one of the biggest beneficiaries of that.”
This was the long-term trend, whilst in the short term there would be volatility in the gold price owing to interest rate moves, geopolitical storms and shifts in central bank gold buying.
“That’s creating shorter-term volatility. But the trend is very much your friend,” he said.