Finweek English Edition - - INSIGHT: LOCAL -

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

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