Gold Investors Target Executives With Less Skin in the Game

(Bloomberg) -- A coalition of gold investors, including firms backed by billionaires John Paulson and Naguib Sawiris, is taking aim at mining executives who don’t have enough skin in the game.

Businesses tend to perform better when top managers have a high ownership-to-pay ratio, according to the inaugural report of the newly launched Shareholders’ Gold Council, which tracked 17 gold companies.

“You have a much bigger ownership in those stocks that have performed above the median and the gold price in the last five years,” Christian Godin, who heads the Shareholders’ Gold Council, said in a telephone interview.

The report compared stock ownership by chairmen and women and chief executive officers with five-year compensation, and then compared that ratio to shareholder returns.

Of the 30 executives listed, Kirkland Lake Gold Ltd.’s Chairman Eric Sprott and Franco-Nevada Corp.’s Pierre Lassonde had by far the highest ownership-to-pay ratio, at 381 times and 160 times compensation, compared with single digits or lower for most of the pack, the report shows. Both companies have performed well in the five years through Nov. 15, with 256 percent and 61 percent total shareholder returns, the gold council’s analysis shows.

If those two are stripped out, the top three chairmen in terms of ownership versus their pay are Bill Beament of Northern Star Resources Ltd., Doug Holtby of Wheaton Precious Metals Corp. and Evolution Mining Ltd.’s Jake Klein. The lowest ratios fall to Kinross Gold Corp.’s John Oliver, Yamana Gold Inc.’s Peter Marrone and Alamos Gold Inc.’s Paul Murphy, according to the report.

Gold Investors Target Executives With Less Skin in the Game

The coalition also tracked CEO ownership versus pay, listing chairmen as de facto CEOs for four companies, meaning Beament, Klein, Marrone and Barrick Gold Corp.’s John Thornton appear on both tables.

Gold Investors Target Executives With Less Skin in the Game

On both tables, Kinross and Yamana had the lowest executive share ownership to five-year pay ratios. In terms of shareholder returns, Yamana offered the worst number -- negative 73 percent -- and Kinross was the fourth-weakest.

Yamana discloses pay-to-ownership ratios of top executives in its public filings and it is substantial, according to a company statement sent by email Tuesday. Marrone is a significant investor in Yamana Gold and continues to focus on the company’s long-term success, the Toronto-based miner said.

Kinross didn’t immediately respond to phone and emailed requests for comment.

Northern Star and Evolution were the best performers with 869 percent and 267 percent returns, respectively, over five years, in U.S. dollars, assuming dividends were reinvested. In comparison, spot gold fell 6 percent over the five years through Nov. 15, while the VanEck Vectors Gold Miners ETF declined 21 percent.

There were notable exceptions. Barrick made the top five on both executive lists, thanks to Thornton’s ownership, but shows a total shareholder return of minus 25 percent over five years, according to the gold council report.

Spearheaded by Paulson

Meanwhile, Randgold Resources Ltd., which is merging with Barrick, returned 11 percent; its CEO, Mark Bristow, made the top five CEOs in terms of ownership to pay, excluding the two outliers.

The gold council, which was spearheaded by Paulson & Co. at the Denver Gold Forum in 2017, launched in September. Its 15 other investors include Egyptian billionaire Naguib Sawiris’ La Mancha Group; John Hathaway, a general partner at Tocqueville Asset Management LP; and activist fund Livermore Partners.

The gold council won’t contact the senior management of corporations directly, said Godin, a former senior vice president at Montrusco Bolton Investments. He says the council hopes the research will encourage its members and other investors to bring up such issues with management themselves.

“We believe that the entire industry could improve returns on an aggregate basis by aligning itself more directly with stock holders, as equal owners of the companies,” the report concludes.

©2018 Bloomberg L.P.