Gold equities reached their breaking point in 2012, according to PricewaterhouseCoopers' (PwC) 2013 Global Gold Price Report. Last year, increasingly frustrated investors doled out severe punishment to gold miners, making it clear that they were rapidly losing faith in the ability of these companies to deliver value. But PwC projects a turnaround and believes that gold miners are positioned for a promising 2013 if they can prove they are worthy of investment.
Gold miners' trouble with investors largely stems from the trend of chasing growth.
CEOs have spent billions on risky acquisitions and capital-intensive projects in the last several years, PwC explains in the report. Since gold prices have been high, those mining the yellow metal have not been pressured to defer projects and slash capex spending to the same degree as miners in other sectors. That means gold companies have had much more leeway to pursue projects while making promises to cut costs.However, many of these projects have ultimately turned out to be failures. Some could not be completed within the set time frames and budgets, while others put forth lower-than-expected production. Still others largely failed to create the shareholder value sought by investors. PwC blames mining executives' poor decision making on their efforts to appease shareholders who want greater exposure to rising gold prices. “If we look back two, three, four years ago, many investors' focus was on increasing gold production,” said Jamie Sokalsky, president and CEO of Barrick Gold (TSX:ABX,NYSE:ABX,LSE:ABG), in an interview with PwC. “They rewarded miners who touted significant production growth. And for the most part, shareholders ended up getting what they asked for — miners making investments to grow for the sake of production growth,” he continued.