For me there are several issues surrounding this topic that need addressing and these are complex and subjective, but appear to mostly be the result of one unique phenomenon that has long characterised gold companies known as the “gold premium”. More on that later. But f irst some comments. The simple rules of value creation, return on capital and or economic value added (EVA) are:
money than they cost! make is greater than the cost of the capital used to make the returns. back, you lost money, because you could have had more in the bank. plus enough to cover the cost of the capital, you have made or lost no value. On a risk adjusted basis, the same as having your money in the bank. plus more than the cost of the capital used in the investment then (and only then) have you added any value on a per share basis for public companies.
Apologies if this sounds very basic, but the actual understanding and application of these principles is very hard to find in the gold sector.
One of the major issues I f ind is that very few corporates spend time understanding or know what their marginal cost of capital is. Given the very high use of and dependence on equity capital it would seem that most executives in the gold sector think is very low or even zero. Back to the issue on the “gold premium”.
This issue relates to the