56 Business The EconomistFebruary 8th 2020
I
n most bigeconomies the government’s
budget plans seldom drive large move-
ments in the stockmarket. Except in India.
Bosses and investors parse the documents
for clues about which industries or firms
gained favour and which fell out of it. Mar-
kets react accordingly. In February 2008 the
Mumbai bourse’s main index fell by 12% in
five days after India’s then-rulers were per-
ceived to have responded inadequately to
the global financial crisis. This year’s bud-
get came on February 1st, a Saturday. Stock-
markets held a special weekend session.
Bosses and investors were glued to tv
screens as the finance minister, Nirmala
Sitharaman, recited the provisions—until,
after a record two hours and 41 minutes,
she was too exhausted to go on.
The viewers apparently felt as deflated;
share prices sagged. New duties were im-
posed on, among others, paper clips, crock-
ery, fridge compressors and circuit boards,
and lifted on thoroughbred horses, for ex-
ample. Over the next three days shares re-
bounded, perhaps out of optimism that
measures such as the sale of state assets
might actually come to pass for once. 7MUMBAI
The Indian budget is a powerful
market forceBusiness in IndiaBuy and sell
tax-and-spend
Political economySource:BloombergIndia, day before budget announcement=100BSE 500stockmarketindexBestandworstperformingsectors
in BSE 500 index, 2020Tradingdaysbefore/
afterannouncement859095100105110-5-4-3-2-101234520082009201020162020Tradingdaysbefore/
afterannouncement859095100105110-5 -4 -3 -2 -1 0 1 2 3Telecoms
MetalsPropertyCapital goodsF
or muchof the 2010s gold companies
looked rather leaden. At roughly $300bn
the world’s dozens of listed gold firms have
a combined market value that is less than
that of the maker of Nescafé Gold coffee.
Yet when miners of all the Earth’s riches
gathered in Cape Town on February 3rd-6th
for their biggest investment jamboree of
the year, those digging for the shiny stuff
were aglitter. As economic uncertainty and
low interest rates pushed gold prices up by
19% last year, the quickest rate since 2010,
goldminers’ share prices surged, too—and
twice as fast.
Mining the yellow metal is a thankless
business. Gold executives must reinvest
constantly just to sustain production—the
average gold deposit is smaller and more
rapidly depleted than many other ores. At
the same time, they must return money to
shareholders, pay taxes and royalties in
countries where they operate and safely
close ageing mines that used cyanide to
leach gold from ore. For years many firms
balanced these demands with the grace of a
toddler bearing a tray of champagne. As
they unveil their full-year earnings in the
coming weeks, their investors are looking
for signs of sure-footedness.
In the last big bull market for gold, from
2009 to 2012, companies splurged on big
deals and loaded up on debt. A subsequent
fall in prices exposed poor management,
says Josh Wolfson of rbc Capital Markets,
an investment bank. In the past five years
gold companies’ return on equity was neg-ative 5%, even as companies in the s&p 500
index averaged a positive return of 15%.
Now gold firms are benefiting from an
amalgam of pricier gold and cheapish oil,
which is an important input. But miners
have also learned from past mistakes. Be-
tween 2013 and 2017 the aggregate net debt
of the top 20 gold companies tracked by
gdx, a specialised exchange-traded fund,
fell by 42%. Costs to sustain production
dropped by about 20% from 2012 to 2017,
says Credit Suisse, a bank.
The industry has consolidated. Last
year saw more than $33bn of mergers, ac-
quisitions and joint ventures (jvs), accord-
ing to Refinitiv, a data provider. That in-
cluded two mega-deals. Barrick Gold of
Canada paid $7bn, including net debt, for
Randgold Resources, with mines across Af-
rica. Newmont Mining, an American firm,
purchased Goldcorp, another Canadian
one, for $12bn. Many companies, including
Barrick and Newmont, are at last shovel-
ling more cash to shareholders.
Gold bosses must now prove that all the
dealmaking was wise. Barrick’s new chief
executive, Mark Bristow, earned investors’
trust as head of Randgold, which success-
fully weathered past declines in the gold
price. There were too many mediocre man-
agers and not enough good assets to go
around, Mr Bristow says. Scale, he con-
tends, will attract more non-specialist in-
vestors to the industry.
Mr Bristow has moved quickly to make
his case for consolidation. He has trimmed
Barrick’s head office and settled a long-run-
ning tax dispute with the government of
Tanzania. When Barrick’s hostile bid for
Newmont failed, he helped engineer a jv
between the two, which is wringing sav-
ings from their vast assets in Nevada. Since
some of the world’s most promising re-
maining deposits of gold also produce cop-
per, Mr Bristow wants to dig up more of the
red metal (demand for which should grow
with the real economy, where it has a prac-
tical use).
The industry has not dug itself out of its
hole quite yet. The miners’ recent spending
restraint has also meant less money for all-
important exploration. Since 2011 the re-
serves of the 20 biggest gdx firms have fall-
en by 36%, to 12,400 tonnes (worth $624bn
at current prices). Analysts reckon that
gold production may be about to peak, with
declines forecast in the 2020s.
At the same time, investors increasingly
attentive to firms’ environmental, social
and governance metrics eye with suspicion
energy-intensive businesses operating in
places with a history of corruption and in-
stability—or, as goldminers describe them,
“complex jurisdictions”. Despite gold com-
panies’ efforts to lower carbon emissions
and behave more ethically, investors still
see the grubby reputational risk of crude,
minus the generous dividends. 7CAPE TOWN
The mining industry’s glitterati try to
restore their sparkleGoldminingGolden retrievers