Ten years ago, when gold's bull run was just beginning, the sessions at the Denver Gold Forum were "a lot like going to church," Franco-Nevada (FNV-T) president and CEO David Harquail said at a presentation at this year's show.
The gold price was around US$250 an oz., Harquail recalled, and "everybody prayed a lot."
With gold having recently hit an all-time nominal high of US$1,900 an oz., those prayers have been answered, and at current prices, gold miners are now enjoying record profit margins.
The only problem is that gold stock prices aren't responding.
However, gold miners haven't lost their faith. Far from wringing their hands over the disparity between gold's spectacular run and the lagging prices of gold equities, gold miners at the forum, held in Colorado Springs this year from Sept. 18-21, were universally confident that their share prices would soon close the gap.
"Lagging performance of the gold equities has been a key topic of conversation of late . . . but I really don't think that it should be unexpected," Goldcorp (G-T, GG-N) CEO Chuck Jeannes said. "If you look back at how equities have responded to very rapid increases in gold prices, it always takes time for investors' views of long-term gold prices to catch up with the gold price. That's only logical."
Jeannes cited a recent study that calculated the amount of gold traded in the first quarter of 2011 at 10.9 billion oz. - twice the amount of gold that has ever been mined in the world.
"This level of liquidity I believe supports the view that gold truly enjoys a position as an asset class today and as a part of the international currency market."
Jeannes argued that the next logical target for gold would be US$2,400 per oz. - its 1980 record high adjusted for inflation.
Barrick Gold (ABX-T, ABX-N) president and CEO Aaron Regent was similarly upbeat on the yellow metal, contending that there are few safe-haven alternatives to gold.
"Gold has become the global default currency in the world," Regent said. "It's the one currency that can't be devalued."
Dahlman Rose mining analyst and director Adam Graf, however, isn't quite convinced investors see a buying opportunity in gold equities.
"The gold price has been up over US$1,900 and today it's down under US$1,800," he noted in an interview. "Where gold is going to go I couldn't tell you, but certainly the volatility of the gold price is not going to inspire confidence in the buyers of gold equities."
Aside from a near-relentless bullishness, another theme of the conference was yield, with many producers calling attention to their dividend payments. Mindful of the cash accumulating in their coffers at current gold prices, gold miners are increasing their dividends - something that investors have been pushing for even before gold equities underperformed the gold price, Graf said.
The world's second-largest gold miner, Newmont Mining (NMC-T, NEM-N), has been especially responsive to investors' need for yield, announcing a new gold-linked dividend policy in April.
"This is a company which is paying conscious heed to returning capital to investors in an industry which, historically, has not done a lot of that," Newmont president and CEO Richard O'Brien said in a presentation.
The gold major announced that it was sweetening the dividend policy with higher payments at US$1,700 and US$2,500-per-oz. gold. If the gold price averages US$2,500 an oz. over a quarter, shareholders would receive an annualized $4.70 per share.
"If gold goes up to US$2,000 and our share price doesn't move, we'll be yielding about 4.5%," O'Brien said. At current prices, the yield on Newmont shares is 3%.
O'Brien said the policy makes Newmont a unique investment in the gold space.
"If you want to invest in equities and have a parallel return in gold price, we are it, and we compete very effectively not only with all the equity peers but up against ETFs as well."
It's not just majors who are embracing dividends. Three months after starting production at its 60%-owned Bisha gold-copper-zinc mine in Eritrea, Nevsun Resources (NSU-T, NSU-X) declared a semi-annual dividend of 3 cents.
Similarly, New York-listed, Mexico-focused Gold Resource (GORO-X) has given investors 14 monthly dividends totalling 48¢ since it achieved production at its El Aguila mine in Oaxaca state.
While the dividends of gold majors are creeping upward, Dahlman Rose's Graf said yields haven't risen significantly. And with all the cash gold companies have been accumulating, Graf says the sector is "ripe" for takeover activity.
"Certainly, with high gold prices and wide margins, there still hasn't been a lot of mergers and acquisitions - it's been very sporadic."
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