By Luzi-Ann Javier
The red-hot market for gold-mining companies has made the shares too expensive for some investors, even though they remain bullish on the outlook for bullion.
Earlier this year, fund managers including George Soros had gobbled up shares of producers such as Barrick Gold Corp. and Newmont Mining Corp. in a bet that the surprise rally in the price of the metal would spark a surge in profit. After a five-year slump marked by mine closures and losses, the companies were cheap. But now, many are worth twice what they were in 2015 -- after rising at almost five times the rate of the commodity -- so funds have begun unloading the equities while retaining or expanding holdings in physical gold.
The run-up has left major producers valued as if gold prices were 24 percent higher than now, Morgan Stanley estimates. UBS Group AG predicts better returns from bullion as low interest rates and sluggish global growth enhance the appeal of the metal as an asset. There are already signs of a shift by investors. While exchange-traded funds linked to precious metals saw a net inflow of $2.2 billion in the past month, the Bloomberg Intelligence Global Senior Gold Valuation Peers Index of 14 mining companies fell 5.4 percent.
“Just on a valuation aspect, it’s hard for us to get too excited about the equities at this point,” Jo Battershill, a global mining strategist at Zurich-based UBS, said by telephone from London.
In the second quarter, Jon Jacobson’s Highfields Capital Management sold half its 2.5 million shares in Goldcorp Inc., while Global Thematic Partners shed all 1.95 million shares in Greenwood Village, Colorado-based Newmont, filings show. Adage Capital Partners sold more than half of its stake in Yamana Gold Inc. and 31 percent of Toronto-based Barrick, the largest gold miner.