Yesterday we brought you the first part of an interview with Sean Boyd, the president and CEO of Agnico Eagle Mines, where he discussed why he thinks the gold industry will have its best performance in decades when companies start reporting their third-quarter results in a few weeks.
Today we bring you the second part of the interview with Boyd. In it, he explains why this gold bull market will be different than 12 years ago. He also mentioned what companies can do to win investor trust.
With gold prices climbing, Boyd was asked about the supply side of the equation. Demand for gold is clearly exploding. He says with the significant amount of time it takes to get a gold mine into operation, nobody can provide more supply no matter what price gold climbs to.
“That’s the nice thing about the supply and demand equation right now. Even at $2000, the industry is not positioned for a meaningful supply response. They wouldn’t be even positioned at $2500. These projects take a long time to get built. They cost a lot of money to get built. There’s way too many mining companies and not enough high-quality opportunities.”
What Makes This Gold Bull Market Different
With prices moving higher, everyone is expecting margins to increase as well. That was expected to happen 12 years ago but didn’t pan out. Boyd said this gold bull market isn’t like the last one for two reasons.
“There is still a lingering doubt out there among investors: will this be a repeat of 12 years ago? Will the industry fail to deliver the margins we were expecting them to deliver? We argue the industry will deliver the margins,” said Boyd.
“There are two principal differences between today and 12 years ago. One, we have nowhere near the input price pressure we were facing as an industry, and we were facing that pressure because all resource-based industries were booming. Drawing on supplies, drawing on contractors, etc. We don’t have that. And going forward we have a reserve base that has been priced conservatively for the last 7, 8, 10 years and we didn’t have that 12 years ago. We had a reserve base that was massively diluted with a rising gold price being used in the price assumptions prior to that significant run in gold prices.”
On Paying Dividends
A third way to alleviate investor’s fears is to show discipline, said Boyd. The best way to show discipline, he said, is to pay a dividend.
“The best way they can act like they’re disciplined is pay meaningful dividends. And we’ve paid one for 37 years, we’ve increased it every year for the last 6 years while we are in the middle of our biggest cap-ex program in our 60-plus year history. It’s time for companies to demonstrate the confidence they have in their business, the confidence they have in the gold price, and pay more dividends. That will go a long way to alleviate the fears that some investors have that we are going to see a repeat of what we saw a dozen years ago or so.”