theaureport.com / By Sally Lowder / January 9, 2013
There is a war raging behind the scenes among the world’s currencies. Chris Mancini, an analyst with the $400-million Gabelli Gold Fund, believes that gold will emerge the victor. In this interview with The Gold Report, Mancini makes his case for why gold is a currency and not just a relic, and why his fund doesn’t own bullion. He also shares names of companies operating around the world that offer great upside potential.
The Gold Report: You recently wrote, “Gold mining companies are no different from any other company in that company managements must determine the most effective way to return capital to shareholders.”
In an environment where there haven’t been corresponding increases in equity prices to the price of gold, how does a management group effectively grow per-share value for shareholders?
Chris Mancini: If you’re too big and don’t think that you can grow on a per-share basis, the answer is to return some of the cash to shareholders through a dividend. If a company doesn’t have high-quality, high-return-on-capital, low-risk projects to deploy that cash flow into, then a portion should be returned to shareholders as a dividend.
TGR: We haven’t seen a whole lot of that.
CM: Take Barrick Gold Corp. (ABX:TSX; ABX:NYSE) as an example. It had a goal of eventually mining 9 million ounces (Moz) gold and should produce around 7.5 Moz in 2013, which is a difficult thing to do. Barrick has been focused on growing for growth’s sake. It undertook two very capital-intensive projects, Pueblo Viejo in the Dominican Republic, which is complete and should be producing commercially sometime next year, and Pascua-Lama, which is an enormous, capital-intensive project in the Chilean/Argentinean Andes, which the company is doing a poor job of building. That being said, it will be very cash-flow generative once it’s built.
The question becomes at that point, once Pascua-Lama is built, what does it do with its cash flow? We’re getting a sense that it wants to be a leaner, meaner company and that it’s not going to focus on growing its very big production base. That’s a good sign that it might start distributing more of its cash in a dividend.