Billionaire John Paulson Targets Gold CEOs Over PayBy , , and
His hedge fund firm leads formation of shareholder council
Gold stocks have underperformed spot price of metal since 2010
Billionaire John Paulson is building a coalition of major investors in some of the world’s top gold producers to curb years of “value destruction” and excessive executive compensation in the industry.
“The days of CEOs getting rich while shareholders lose has got to end,” Paulson said Tuesday in an emailed statement ahead of a presentation by Paulson & Co. at the Denver Gold Forum. “Management must be accountable.”
The group, to be named the Shareholder’s Gold Council, aims to unify and amplify the voices of institutional investors on matters including board appointments, pay plans and merger activity, said Marcelo Kim, a partner at the hedge fund firm who oversees investments in natural resources.
“Returns have been dreadful,” Kim said in a phone interview. “If we get enough investors on board, these companies won’t have any other choice but to listen to us.”
Shares of 15 gold miners tracked by Bloomberg Intelligence, led by Yamana Gold Inc. and Kinross Gold Corp., have slumped 59 percent since the end of 2010, compared with a slide of 8.5 percent for the precious metal. Several producers poured money into new mines earlier this decade, just as gold prices began to fall, leaving them larded with debt.
Companies in the industry have incurred $85 billion of write-offs since 2010, much of it attributable to ill-advised mergers, while still richly rewarding chief executive officers, according to Paulson & Co.’s presentation. A lack of engagement between boards and investors, and the absence of activists, allowed the companies to do business this way, it said.
The net debt of big mining companies tracked by Bloomberg Intelligence surged almost sevenfold over four years to a record $33.2 billion in 2014, fueled by capital spending.
Paulson & Co. has been in talks with Tocqueville Asset Management LP about its plans for the Shareholder’s Gold Council, Kim said. Vanguard Group Inc., BlackRock Inc., State Street Corp. and Van Eck Associates Corp. are among other large investors in several of the mining companies mentioned in the presentation.
The industry is ripe for this kind of oversight because it’s relatively small and most of the outstanding shares are held by a limited number of investors, Kim said. The group will function much like proxy adviser Institutional Shareholder Services Inc., making recommendations on voting matters such as compensation and the appointment of board members.
Paulson, 61, started a fund that invested in mining companies and bullion-related derivatives in January 2010 with about $250 million of his own money, betting that prices would rise amid unprecedented monetary stimulus. The fund jumped 35 percent in its first year, but then posted losses in some subsequent years after gold peaked in 2011.
— With assistance by Katherine Burton