Why is it that gold equities are continuing to underperform the gold price? That is a question Engineering News & Mining Weekly put to Barrick president and CEO Dr Mark Bristow after he noted the lag of gold equities during the presentation of the third-quarter results of his New York- and Toronto-listed gold and copper mining company.

The gold equity underperformance comes amid demand for physical gold putting upward pressure on the gold price as de-dollarisation within the central bank reserve balances takes place.

“So, you’re effectively seeing a switching of dollars for gold in the central banks, particularly the emerging market central banks,” Bristow outlined in an interview with Engineering News & Mining Weekly.

The two biggest owners of treasury bonds are China and Japan. Then, again, even retail physical gold sales at Costco have been evident. Interestingly, the Western world playing in the gold space was not that apparent until two months ago.

“Over the last two months we’ve seen an increased inflow of ETF gold, and that’s Western investors investing in gold. When you look at it, one can interpret that investment in physical gold is the ultimate hedge against risk.

“As the gold price has moved up, one would expect that there would be more and more interest in gearing that gold movement, and the best way to do that is with equities. But at the same time, there’s been a redemption within most of the gold specialist funds, as people take profits, and people are trying to position themselves, I guess, for the next phase in investment opportunities. It sounds contrary, but we were a bunch of investors and there’s a logic to the fact that at a high gold price, you start seeing people taking their money out of gold funds.

“So, it’s a complex situation. It’s people wrestling with risk and to complicate it, you’ve seen the equities reach. You know, more and more eyes, although the gold price itself has outperformed the S&P, and I think the gold industry and the mining industry in general is at a place where there’s a shortage of optionality. The mining industry, apart from Barrick, hasn’t invested in exploration, which brings optionality into the stock.

“That’s the traditional driver of premiums in the gold industry, we haven’t seen that. What we’ve seen rather is fund managers and investors demanding short-term gratification, instant gratification, from equity, and as you know, the mining business is a long game with long-term capital. So, it’s a complicated situation, and that’s what I’m managing in Barrick. I’ve always created value over the long term. It’s my driver. It’s the very foundation of our Randgold DNA, which is now Barrick’s DNA and that doesn’t always fit neatly with short-termism.

“Physical gold investment is a long-term hedge against global risk. But everyone has become very short term on equity, and that’s driving most of the equities. But gold has not performed as well as some of the other equities, and that’s where the generalists are right now. They’re in IT stocks and the big global innovation stocks; that makes sense,” Bristow pointed out.

Engineering News & Mining Weekly: What is Barrick planning to do to increase gold equity demand, or increase demand for Barrick equity?

Mark Bristow: We don’t need to raise money in the market. We’re effectively independent of the market and so what we need is patient, long-term investors. You would have seen that our net earnings were up 33%, cash flow up 27%. We bought back some more stock because we don’t believe that we’re optimally priced and we also reduced debt. We want a strong balance sheet so that we can remain independent given our big growth projects that we will start building next year. There were many years that we built that value foundation in Randgold before the market recognised the real value that Randgold brought in, and we’re building that in Barrick. Already, if you look at our business, we’re pointing to 30% organic growth. We don’t need other people’s money to deliver on those objectives. We’re building that optionality within our stock price enabling investors to buy something that’s got the upside such as Barrick. That’s our focus.

How is Barrick ensuring that it closes its non-operating tailings storage facilities safely and in an environment-friendly manner?

These tailings are liabilities that were bought in North America in that over-exuberant period when Barrick ran around buying everything, and in many cases, they bought more liabilities than they even understood, and that’s a risk associated with M&A at the top of the market, which we’ve witnessed in the last few quarters. The mining industry today is growing its closure liability, and we’re shrinking it. We’ve reduced our closure liability by 36% since the beginning of the merger with Randgold.