Price of gold mining shares too expensive for some investors
of the merger.
“The SABMiller directors note that AB InBev’s integration planning is not yet complete and regret that the impact on certain employees and office locations of the SABMiller Group remains uncertain.
“However, it is clear that job losses in the combined group will be required and that AB InBev intends to implement the rationalisation, relocation or closure of a number of SABMiller’s global and regional offices,” he said.
AB InBev shares dropped 0.82 percent on the JSE on Friday to close at R1 790.54. THE RED-HOT market for gold mining companies has made the shares too expensive for some investors, even though they remain bullish on the outlook for bullion.
Earlier this year, fund managers, including George Soros, had gobbled up shares of producers such as Barrick Gold and Newmont Mining in a bet that the surprise rally in the price of the precious metal would spark a surge in profit. After a five-year slump marked by mine closures and losses, the companies were cheap. But now, many are worth twice what they were in 2015 – after rising at almost five times the rate of the commodity – so funds have begun unloading the equities while retaining or expanding holdings in physical gold.
The run-up has left major producers valued as if gold prices were 24 percent higher than now, Morgan Stanley estimates. UBS Group predicts better returns from bullion as low interest rates and sluggish global growth enhance the appeal of the precious metal as an asset.
Investor shift
There are already signs of a shift by investors. While exchange traded funds (ETFs) linked to precious metals saw a net inflow of $2.37 billion (R33.9bn) in the past month, the Bloomberg Intelligence global senior gold valuation peers index of 14 mining companies fell 5.7 percent.
“Just on a valuation aspect, it’s hard for us to get too excited about the equities at this point,” Jo Battershill, a global mining strategist at Zurich-based UBS, said from London.
In the second quarter, Jon Jacobson’s Highfields Capital Management sold half its 2.5 million shares in Goldcorp, while Global Thematic Partners shed all 1.95 million shares in Colorado-based Newmont, filings show. Adage Capital Partners sold more than half of its stake in Yamana Gold and 31 percent of Toronto-based Barrick, the largest gold mining company.
The sales don’t necessarily signal a bearish view on gold. With the Federal Reserve keeping US interest rates unchanged since December and other central banks boosting stimulus to support growth, the precious metal had its best first half in four decades, rising 25 percent.
Yields on about $9 trillion in government debt in developed markets have dropped below zero, meaning those who buy the debt and hold to maturity stand to lose money. According to UBS, bullion could rally to $1 500 an ounce next year from about $1 340 now.
Even after shares of major producers started falling this month, the Bloomberg index of major gold mining stocks is up 119 percent this year. In the second quarter, investors valued the gold reserves of those companies at $182 an ounce, almost double the amount in the fourth quarter of 2015 and the highest since 2012, a year after the precious metal climbed to a record, data show.
Net inflow to precious metals funds last month
One of the starkest examples of diverging sentiment between gold and the companies that produce was the second-quarter shift by Soros Fund Management. According to a government filing, the money manager sold almost all its stake in Barrick and bought 240 000 shares in SPDR Gold Shares, the largest ETF backed by the precious metal.
Even some investors who take their trading cues from market-reading computer algorithms were exiting gold producers. Renaissance Technologies, a $32bn New York hedge fund founded by Jim Simons, sold almost all its holdings in Goldcorp and Yamana and more than a third of its stake in Barrick during the three months to June 30, filings show.
There are still some betting that the rally in gold mining shares isn’t over. Arrowstreet Capital bought 14.2 million shares of Barrick, 13.4 million shares in Goldcorp and 14.8 million shares in Yamana in the second quarter. While some high-profile funds cut gold mining stocks during the second quarter, overall inflows continued, albeit at a slower pace. – Bloomberg