Gold: Active Investments in Gold Mining

Active engagement being used to turn-around a mis-managed industry of Gold Mining



Sophisticated investors increasingly focus on co-investment opportunities and unique, special situations. For this Insights report, we spoke with Coast Capital, a highly respected activist and event-driven fund that takes a private equity approach to investing in mid-cap public companies. Coast has shared a compelling example of active engagement being used to turn-around a mis-managed industry – with the potential to yield great returns for investors.

Opportunity Set in Gold Mining

The gold mining industry currently presents an extraordinary, timely, and under-explored investment opportunity.

Valuations are at or near all-time lows, and earnings at the average company are depressed due to onerous and unnecessary corporate overhead and exploration costs. Meanwhile, the average company is still very profitable – producing gold for approximately 950 per Oz. and selling it for 1250 to 1300 (25% margins). Finally, major gold producers around the world are running out of reserves, which sets the stage for an important, and unprecedented, wave of consolidation.

We believe that this set of circumstances– all time low valuations on earnings that can be improved, need for consolidation, and positive cash flows, makes for an extraordinarily attractive investment for an actively engaged / activist fund.

A Cash Generative, Yet Mismanaged Industry

The entire gold mining industry has a combined market value of ~$200 billion. Since 2010, the top 25 gold miners alone have generated more than $130 billion in operating cash flow. Over that same timeframe, they have destroyed $150 billion in capital by investing in worthless projects, and buying assets high, selling them low. The almost unilaterally under-performing CEOs have paid themselves nearly $1 billion despite horrid performance.