Gold mining executives meeting in Toronto for an annual prospectors' convention have been buzzing about their stocks relatively weak valuatio and what they should be doing about it, the Financial Times reported.
While prices for mining stocks have improved as gold and other precious metals have risen in value recently, stock fundamentals have worsened, the Financial Times said Monday.
Prices for gold miners have been trading at a smaller multiple of their net asset value -- their assets, including the gold on the ground, minus liabilities -- than they were until a few years ago, when gold began skyrocketing in price. Shares of the larger, more established companies have been especially left behind, as they have seen their premiums over the securities of newcomers decrease.
Part of the reason for the changed dynamics, the Financial Times suggests, is market expectations that gold might be trading at inflated prices, with the article noting one gold executive who sees valuation reflecting long-term prices for the yellow metal near $1,200 per ounce. Gold has traded between near $1,600 to just south of $1,800 per ounce since the beginning of the year.
There is also the possibility institutional investors are going sour on the particular mining sector, which is not known for having equities that consistently pay dividends. The ability to hedge portfolio exposure to gold by buying (or shorting) a cornucopia of precious metals-linked funds, an option that did not exist a few years ago, is additionally likely to be weighing on mining shares.
There could also be a fundamental shift between the way gold miners used to be valued -- calculating a multiple of the net asset value -- and the way they are seen now, with company-specific factors other than assets playing particular roles.
As of Tuesday morning, the benchmark NYSE ARCA Gold Bugs Index (INDEXNYSEGIS: HUI), which tracks the largest gold miners, was up 0.96 percent for the year. The reference contract on gold for spot delivery, which expires in April, traded at $1690.90 per ounce. Spot gold is up just shy of 8 percent for the year.