It's been a frustrating year for gold investors. The metal started off with a bang, rallying to within an earshot of $1,400 per ounce before sliding to below $1,300, where it has been hovering since late March.
Much of the commentary about gold's price action focuses on macro developments like central bank policies, the dollar's strength (or lack of it) and the market's appetite for 'risk assets'.
Dr. Mark Bristow, CEO of Randgold Resources (GOLD), says investors should focus more attention on the source of gold, i.e. the miners.
"Fundamentally we’ve got a structural issue in the gold industry," Bristow says. "Everyone is cutting capital, cutting exploration and producing a lot of our gold at a loss and selling it into the market. When you do that you’re going to put pressure on the gold price."
Bristow says the industry made a similar mistake in the 1990s at the end of gold's long bear market from its 1980 peak of $850 to below $300 per ounce in 1999.
"If the industry could get its act together and really focus on profitability, it will do two things," he says. "One, shareholders of gold stocks will do better and, two, we’ll drive the gold price up so it becomes a circuitous positive thing."
Last week, Randgold reported a 14% rise in first-quarter profits despite a 21% year-over-year decline in gold prices.
“Our natural reaction in these environments is to up the ante on the hunt for that next big discovery," Bristow said on the company's conference call.
In the accompanying interview, Bristow discusses the outlook for finding properties that meet its new standard of at least 3 million ounces of gold reserves at an assumed price of $1,000 per ounce and internal rate of return of at least 20%.
"When you find big discoveries, it’s like hunting trophy animals – you don’t have to take out the binoculars," he says. "We’ve found five in the past 20 years and the key is we’re still investing. We haven’t hesitated. If anything, we've focused the team more aggressively on new discoveries."
Bristow also doesn't hesitate to criticize other major players in the industry.
The "key takeaway" from recent chatter about a potential merger between Newmont Mining and Barrick Gold "is a recognition these companies are badly structured corporately and there needs to be substantial restructuring of the industry," he says. "Not only at top end but bottom as well."
Barrick and Newmont announced last month that merger talks had broken down, but "we haven’t seen the last of those pressures to bring some different focus for our industry, one where people make money," Bristow says.