BlackRock's Hambro slams mining firms' 'reckless' share buybacks, urges mine investment

The surge in stock buybacks by gold mining giants is reckless and undisciplined, and with gold prices likely to rise from current levels, mining companies and their shareholders would be better served by investing in new production, according to BlackRock's head of natural resources Evy Hambro.

"One of the things we've been really dismayed about in the last 18 months or so has been the reckless capital allocation towards share buybacks in gold companies, where we've seen enormous amounts of money deployed on buybacks without any real process," Hambro said this week at the Financial Times Mining Summit.

Four of the biggest miners—Barrick Mining (B), Newmont (NEM), AngloGold Ashanti (AU), and Gold Fields (GFI)—have unveiled share buyback programs worth a combined ~$12B, and BlackRock owns significant stakes in each.

"If you look at what companies do when they're making $1B investment decisions on building new mines, they do far more work on that than they do on $1B decisions to buy back their own shares," Hambro said, contrasting the buyback programs with the work of allocating capital to developing new mines to increase future supply.

BlackRock remains bullish on the long-term trend for gold, however, pointing to the massive debts and deficits carried by so many of the world's governments, even with more near-term gold price volatility from shifting monetary policy expectations and interest rates.

"You see no plan from governments to fix the problems, beyond doing more and more of the same," Hambro told the conference. "To me, that means you're going to see an ongoing depreciation in the purchasing power of paper currencies. The outcome is that real assets rise in price, and gold is probably one of the biggest beneficiaries."

Gold futures edged higher on Friday, as the U.S. dollar weakened for a second session but yields ticked up.

The front-month Comex October contracts for gold (XAUUSD:CUR) and silver (XAGUSD:CUR) both gained 0.3% to $4,159.50/oz and $56.995/oz, respectively; for the full week, gold slipped 0.7% and silver slumped 6%.

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