US Hedge Fund Aims to Shake Up Gold Mining with Investor Alliance

In a move that industry insiders are calling “unprecedented” US hedge fund Paulson & Co, led by long-time gold bull John Paulson, is creating an investor alliance with the main goal of rejuvenating the gold mining sector.

Paulson will gather a group of investors, to be named the Shareholders Gold Council (SGC), who will work collaboratively to make changes and incur better returns from the gold mining sector after years of “dismal” industry performance.

The alliance is unusual because there is no similar group of investors targeting a specific sector, activism experts say, according to Reuters.

Walied Soliman, chair of Norton Rose Fulbright Canada, added, “I have never heard of an industry wide shakeup effort by a coalition of major shareholders.”

The SGC is expected to take-off sometime this month and will reportedly involve more than a dozen investors, including Delbrook Capital, Livermore Partners and Tocqueville Asset Management.

“The announcement comes at a much needed time for the gold mining sector. The value of the Canadian gold mining index is down 40 percent over the past decade, while gold prices are up 46 percent and the S&P 500 index is also up 95 percent over the same time period,” said Anna Golubova of Kitco News.

As a first matter of business, the group will begin releasing research reports on the gold mining sector, with the hopes that putting focus on the industry will result in greater accountability.

SGC plans to force gold companies into making changes in capital allocation, compensation and corporate governance.

Additionally, the group hopes to raise the sector’s profile among mainstream investors.

While it is unclear which companies will be the first targets of the group, the investors involved own stakes in corporations such as Goldcorp (TSX:G), Barrick Gold (TSX:ABX) and AngloGold Ashanti (JSE:ANG).

If this venture proves to be successful, there is potential for other sectors, such as oil and gas, to launch similar initiatives.

However, Soliman said the group could face challenges, stating, “the most important driver of value in a mining company is commodity value. No activist can control that.”

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.