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SHAREHOLDERS’ GOLD COUNCIL

For Further Information, contact:
Christian Godin
Email: shareholdersgoldcouncil@gmail.com
www.goldcouncil.net

Report 2: The $13 Billion G&A Opportunity

INTRODUCTION

The recent run up in gold prices has led to significant near-term outperformance of gold equities.
Notwithstanding this recent move, gold equities have significantly underperformed the gold price over the
long-term.

Gold Price vs. GDX Performance

1-Year 3-Year 5-Year 7-Year 10-Year

Gold Price +26% +12% +18% -8% +57%

GDX ETF +53% -3% +14% -35% -22%

Over/Underperformance +27% -15% -4% -27% -80%

Source: Bloomberg, As of August 20, 2019

SGC believes that one of the many areas that gold companies should continue to focus on is cost control,
particularly G&A spending. SGC believes that for gold equities to build on the recent outperformance and
narrow the historical performance gap, gold company boards must continue to hold management teams
accountable for all costs and encourage them to find ways of unlocking value from G&A reductions in a way
that benefits shareholder returns.

In this report, the SGC analyzed G&A spending levels for gold producers. Our work focused on 47 global
primary gold producing companies with market capitalizations above $100 million. The aggregate market
capitalization of these companies is $204 billion1. SGC split these companies into three groups that are
shown below according to declining market capitalization:

1
All market data in this report is as of August 20, 2019. All dollar amounts in this report are in USD, unless noted otherwise.
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Senior Producers Multi-Asset Producers Single Asset Producers

-Barrick -B2 Gold -Detour
-Newmont Goldcorp -Yamana -Pretivm
-Newcrest Mining -Alamos -Centamin
-Polyus -Centerra -Regis
-Agnico Eagle -Endeavour -Torex
-Kirkland Lake -SSR Mining -Alacer
-AngloGold Ashanti -Harmony -Wesdome
-Polymetal -St Barbara -TMAC
-Kinross -IAMGOLD -Premier
-Evolution -OceanaGold -Roxgold
-Northern Star -Eldorado Gold -Asanko
-Gold Fields -SEMAFO -Guyana Goldfields
-Equinox
-Resolute
-Dundee Precious Metals
-New Gold
-Perseus
-Leagold
-Teranga
-Petropavlovsk
-Argonaut
-Golden Star
-Jaguar

SGC aggregated annualized corporate G&A spending levels, including stock-based compensation, for the
above-mentioned companies2. Stock-based compensation was incorporated because these costs are borne
by shareholders’ equity. SGC then analyzed G&A spending levels as a percentage of 2019 consensus
EBITDA estimates3 to create what SGC believes is an effective measure of comparison between the different
companies. This relative measure of efficiency helps to analyze how much of the profit that mine-site
workers generate is consumed by head office costs. SGC also analyzed a number of other mining
companies4 that are not primary gold producers in order to benchmark gold companies across other mining
industry peers.

2
Figures are income statement G&A numbers and include stock-based compensation where disclosed. The figures are either annualized for the
1H19 numbers for the last available reporting period or based on 2019 guidance. SGC understands that different companies account for G&A
differently, including some companies that capitalize certain G&A expenditures and others that push G&A costs down to mine-sites. Given the lack of
uniformity in reporting and poor disclosure, SGC believes its approach provides the most accurate, publicly available estimate for corporate G&A.
3
Bloomberg
4
Group companies include Anglo American, Antofagasta, Freeport-McMoRan, First Quantum, Fortescue Metals, Lundin Mining, Southern Copper,
Teck Resources and Vale.
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KEY FINDINGS

For the senior gold producers, Evolution, Barrick, AngloGold, Kirkland Lake and Northern Star have the
lowest G&A as a percentage of 2019 consensus EBITDA. Polymetal, Kinross, Agnico, Newmont Goldcorp
and Gold Fields have the highest spending level. The range varies from 4.5% to 17.5%, while the median is
8.2%.

Senior Gold Producers’ G&A as a Percentage of EBITDA

Source: Company Reports, Bloomberg

The senior gold producers’ annual G&A totals $1.547 billion across 12 companies, with an aggregate market
capitalization of $158 billion. These companies currently trade at a median EV/2019E EBITDA multiple of
9.2x, implying $14.2 billion of value leakage from G&A spending, equivalent to 9% of market capitalization.
Similarly, a 20 year NPV calculation discounted at 8% implies $15.2 billion of G&A value leakage for these
companies, equivalent to 10% of aggregate market capitalization.
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For the mid-tier, multi-asset producers, St. Barbara, New Gold, Harmony, Semafo, and Endeavour have the
lowest G&A as a percentage of 2019 consensus EBITDA. Golden Star, Jaguar, Petropavlovsk, Dundee and
Eldorado have the highest spending level. The range varies from 6.2% to 33.2%, while the median is 12.7%.

Multi-Asset Producers’ G&A as a Percentage of EBITDA

Source: Company Reports, Bloomberg

The multi-asset producers’ annual G&A totals $739 million across 23 companies, with an aggregate market
capitalization of $32 billion. These companies currently trade at an average EV/2019E EBITDA multiple of
6.4x, implying $4.7 billion of value leakage from G&A spending, equivalent to 15% of market capitalization.
Similarly, a 15 year NPV calculation discounted at 8% implies $6.3 billion of G&A value leakage for these
companies, equivalent to 20% of market capitalization.
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For the single-asset producers, Regis, Centamin, Roxgold, Pretivm and Torex have the lowest G&A as a
percentage of 2019 consensus EBITDA. Premier, Asanko, Guyana Goldfields, Wesdome and TMAC have
the highest spending level. The range varies from 3.9% to 194.8%, while the median is 10.0%.

Single-Asset Producers’ G&A as a Percentage of EBITDA

Source: Company Reports, Bloomberg

The single-asset producers’ annual G&A totals $177 million across 12 companies, with an aggregate market
capitalization of $14 billion. These companies currently trade at a median EV/2019E EBITDA multiple of
7.0x, implying $1.2 billion of value leakage from G&A spending, equivalent to 8% of market capitalization.
Similarly, a 10 year NPV calculation discounted at 8% implies $1.2 billion of G&A value leakage for these
companies, equivalent to 8% of market capitalization.
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SGC performed the same analysis for a group of non-gold producer mining peers. This group comprised
Anglo American, Antofagasta, Freeport-McMoRan, First Quantum, Fortescue, Lundin Mining, Southern
Copper, Teck and Vale. The median G&A as a percentage of 2019 consensus EBITDA estimates for this
group was 4.2%. This compares to 8.2% for the senior gold producers, 10.0% for the single-asset gold
producers and 12.7% for the mid-tier, multi-asset gold producers.

Median G&A as a Percentage of EBITDA

14.0%
12.7%

12.0%

10.0%
10.0%

8.2%
8.0%

6.0%

4.2%
4.0%

2.0%

0.0%
Non-Gold Miners Senior Gold Single-Asset Gold Multi-Asset Gold

Source: Company Reports, Bloomberg

CONCLUSIONS

The total aggregate annual G&A spend for the 47 gold companies reviewed by SGC was $2.463 billion.
Effectively, this means that every year, $2.5 billion of profits that are generated from mine-site
workers are used to pay for the salaries and costs of head office management and boards. In turn,
financial markets discount the value of these companies by approximately $21 billion5. These figures
are significant, as they represent 11% of the aggregate market capitalization and 9% of the aggregate
enterprise value of these companies.

5
Figure represents midpoint of $20.1 and $22.7 billion range. The $20.1 billion figure is aggregate figure calculated using EV/EBITDA method while
$22.7 billion uses NPV method.
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The SGC believes that management teams and boards should look at different ways of reducing G&A costs.
The fact that there is such a rage of relative G&A values suggests that there are ample opportunities to run
these companies more efficiently, which can unlock substantial value for shareholders.

As expected, senior gold producers benefit from their scale and have the lowest G&A spend ratio. However,
the wide range of values among them shows that there are companies that are run more efficiently than
others. Those on the high end of spending should strive to reduce costs organically or through synergistic
transactions.

One of the more surprising conclusions that can be drawn from our analysis was that mid-tier, multi-asset
producers were the most inefficient with respect to G&A spending. This was not surprising compared to the
senior gold producers, since the seniors benefit from bigger scale and size. However, the fact that mid-tier,
multi-asset gold producers spend more in G&A than single-asset gold producers shows that the former can
be run more efficiently. Importantly, the potential for value creation is most significant here, as aggregate
G&A value leakage for the mid-tier, multi-asset group as a percentage of market capitalization is between 15-
20%. These figures suggest that there are far too many mid-tier, multi-asset gold producers and
demonstrate the need for the consolidation in that space particularly.

The SGC strongly encourages mid-tier companies to pursue nil-premium mergers of equals where
the elimination of duplicate corporate structures can benefit shareholders from a combination. By
SGC’s estimation, if the number of mid-tier companies were reduced by half, then approximately
$2.4-$3.2 billion6 of value could potentially be unlocked, representing 7 to 10% of the aggregate
market capitalizations of this group.

For the single-asset producers, SGC recognizes that many of them may have just brought on new projects.
However, as they mature in their operating existence, merely running one mine out is an unacceptable path
forward. Once single asset producers reach a level of operational stability, they should explore opportunities
to sell themselves to other companies or, if the management team has a reputable track record, then they
should drive to pursue value-accretive opportunities. Single asset producers need to resist the temptation to
create corporate structures which only serve to divert mine-site profits to management and board costs that
may not be adding any value. For the 12 single-asset companies analyzed in this report, this represents a
meaningful $1.2 billion of value.

Arguably the most significant finding of this report was the discrepancy in spending between gold miners and
other miners. The senior group of gold producers spend nearly 2.0x more than comparable non-gold
producing miners, while the single-asset gold producers spend 2.4x more and the multi-asset gold
producers spend 3.0x more than non-gold miners.

6
The $2.4 billion aggregate figure is calculated using the EV/EBITDA method while $3.2 billion aggregate figure is calculated using the NPV method.
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Gold Producer G&A as Multiple of Non-Gold Miners

Source: Company Reports, Bloomberg

Generally speaking, gold mining is simpler than other types of mining, including because of the fact that gold
doré bars can be transported at a very low costs by plane. Copper and iron ore producers have complex
selling arrangements for different concentrates and blends as well as heavy trucking and rail needs to deliver
final products in bulk size, necessitating higher G&A expenses. SGC believes there is no justification for
why gold miners spend more than non-gold miners from a G&A perspective.

The inescapable conclusion of our analysis is that gold producers are significantly mismanaged from a G&A
perspective and that gold company boards need to do a better job holding management teams to account. If
the gold producers brought down their G&A levels closer to other mining peers, then $13 billion7 of
value could be unlocked for shareholders. SGC believes that it is imperative for management teams
and boards to immediately explore ways to reduce excessive spending levels. This can be done
organically through meticulous and systematic cost rationalization or through accretive M&A
transactions where shareholder interests come before the personal interests of management and
boards of directors.

7
Figure represents midpoint of $12.2 and $13.8 billion range. The $12.2 billion aggregate figure is calculated using the EV/EBITDA method while the
$13.8 billion aggregate figure is calculated using the NPV method.
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APPENDIX & SUPPORTING INFORMATION8

SENIOR GOLD SINGLE ASSET GOLD
G&A 2019E G&A G&A 2019E G&A
Company Amount EBITDA As % Company Amount EBITDA As %
Evolution 42.2 940.6 4.5% Regis 13.9 354.4 3.9%
Barrick 180.0 3,929.2 4.6% Centamin 11.9 294.4 4.0%
AngloGold 80.0 1,668.6 4.8% Roxgold 7.4 101.0 7.4%
Kirkland 48.5 895.7 5.4% Pretivm 19.8 258.0 7.7%
Northern Star 50.4 711.0 7.1% Torex 21.4 275.0 7.8%
Newcrest 134.0 1,760.0 7.6% Detour 24.8 303.7 8.2%
Polyus 190.0 2,359.3 8.1% Median 10.0%
Median 8.2% Alacer 27.5 231.5 11.9%
Gold Fields 105.8 1,230.1 8.6% TMAC 19.6 127.8 15.3%
Newmont 325.0 3,679.2 8.8% Wesdome 11.3 71.1 15.9%
Agnico 104.4 1,011.3 10.3% Guyana Gold 9.2 39.9 23.0%
Kinross 144.4 1,317.1 11.0% Asanko 8.0 5.8 137.5%
Polymetal 172.0 981.7 17.5% Premier 14.8 7.6 194.8%

MULTI-ASSET, MID-TIER GOLD

G&A 2019E G&A
Company Amount EBITDA As %
St Barbara 22.0 354.0 6.2%
New Gold 20.8 247.4 8.4%
Harmony 50.0 536.7 9.3%
Semafo 28.9 309.4 9.3%
Endeavour 36.4 379.3 9.6%
Centerra 47.8 493.4 9.7%
Perseus 15.6 157.9 9.9%
Yamana 73.6 687.8 10.7%
Alamos 32.2 282.2 11.4%
B2 Gold 73.0 633.7 11.5%
NON-GOLD
Resolute 36.8 302.6 12.2% G&A 2019E G&A
Median 12.7%
Company Amount EBITDA As %
Leagold 18.7 147.4 12.7%
SSRM 26.2 203.8 12.8%
Fortescue 108.0 8,073.7 1.3%
Teranga 20.0 134.0 14.9% Vale 1,690.0 71,305.6 2.4%
Iamgold 42.0 265.1 15.8% Southern Copper 118.8 3,692.3 3.2%
Argonaut 14.3 88.9 16.1% Teck 166.0 4,951.8 3.4%
Oceana 47.0 292.2 16.1% Median 4.2%
Equinox 13.6 81.7 16.6% First Quantum 72.0 1,708.2 4.2%
Eldorado 41.3 217.3 19.0%
Anglo American 558.0 10,467.6 5.3%
Dundee 35.4 141.7 25.0%
Petropavlovsk 38.7 145.3 26.6% Lundin 47.6 682.6 7.0%
Jaguar 9.4 31.1 30.1% Freeport-McMoRan 418.0 2,858.2 14.6%
Golden Star 19.1 57.7 33.2% Antofagasta 467.6 2,455.1 19.0%

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Amounts are in reporting currency
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DISCLAIMER

This publication has been prepared with all reasonable care and the information contained in this
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