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Gold companies struggle to woo investors despite high prices, lure of dividends

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Gold companies struggle to woo investors despite high prices, lure of dividends

One sign that Canada’s gold mining executives are still working to lure back investors to their sector is how many companies are giving money back to shareholders.

Agnico Eagle MInes Ltd. boosted its dividend 14 per cent, Barrick Gold pushed its dividend up by 25 per cent, and Kirkland Lake Gold has committed to doubling its dividend while  other companies have also made similar promises.

Giving cash back to investors comes at a time when gold prices are soaring — still up roughly 20 per cent since the beginning of June to US$1,569 on Tuesday — meaning many gold producers are suddenly awash in cash.

Gold prices fell 4.6 per cent on Friday to US$1,568.96 per ounce Friday, as the safe-haven metal withered amid a broad-based market rout.

Yet, even as factors mount to suggest that gold prices will continue to rise, including fears of a global pandemic combined with low-interest rates, investors remain skeptical about gold mining companies. Agnico Eagle, for example, generated record cash in 2019 of  US$881 million. But since it cut its 2020 production guidance on Feb. 13, to 1.875 million ounces from 1.9 to 2 million ounces, its stock has dropped 20 per cent to $62.41.

“On the updated guidance alone, the share price appears to be an over-reaction,” Jackie Przybylowski, an analyst with BMO Capital Markets wrote in a note about the company afterwards, echoing a few other analysts’ sentiment.

Investors’ skittish attitude toward gold miners, combined with a broader fear about how coronavirus, or Covid-19, could affect global economic growth and various commodities, is creating an air of anxiety over the largest mining conference in North America, which is scheduled to take place in Toronto from Sunday.

The Prospectors and Developers Association of Canada is still planning to hold its conference in downtown Toronto, which draws professionals from around 130 countries. The organiser has posted notes on its website, promising to take extra measures to disinfect and clean the premises this year in an effort to allay concerns.

There are also reports that there will be larger than usual protests outside the conference in a sign of solidarity with protestors opposed to the construction of a gas pipeline through traditional Wet’suwet’en territory.

Regardless of any shadow cast by these events, Canada’s junior mining sector as a whole has been struggling.

In 2019, the 1,138 mining and exploration companies listed on the TSX Venture raised the least amount of money in years, about $2.1 billion or 30 per cent less than 2018 and 33 per cent less than 2017.

Only 28 new mining companies listed last year, the lowest numbers since at least 2016.

Pierre Lassonde, chairman of Franco-Nevada Corp., whose company finances many mining projects by providing cash upfront in exchange for royalties and payment streams from the mines, said junior precious metals producers by and large are still finding it difficult to raise equity capital.

The bright side is that higher gold prices are giving majors a new ability to invest in junior explorers.

Earlier this week, at BMO’s Metals and Mining Conference in Florida, Lassonde said that strong gold prices had provided them with an ability to pay down debt and stockpile cash for potential investments and future acquisitions.

“The mood was definitely upbeat, with US$1,600-plus an ounce (gold), all the producers are making big, big cashflows,” Lassonde said. “They’re smiling ear to ear.”

While higher gold prices do not directly affect exploration and development companies that do not produce yet, he predicted there would be a trickle-down effect.

“I think that the theme (of PDAC this year) will be that the seniors, and the major intermediate companies all have cash and cashflow,” said Lassonde, “and they are going to be the buyers of anything that’s interesting in the junior world.”

• Email: gfriedman@postmedia.com | Twitter: GabeFriedz

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