MINER DETAILS — Shareholders should come first

When it comes to passing judgment on companies’ management, shareholders have a habit of voting with their feet. If they don’t like the way things are done, they walk away.

They don’t have much choice. Shareholders are supposed to be the owners, but all the rules seemed to be stacked in management’s favor. As Yorkton Securities’ loquacious Peter Miller puts it: “We take great exception to managements, with low equity participation, awarding themselves gigantic salary and pension packages and then, adding insult to injury, adopting legal ploys to barricade themselves from both shareholders’ wrath and takeover by a more efficient operator — the management entrenchment schemes sometimes laughingly referred to as Shareholder Protection Schemes.”

The only option investors have is to sell and look for something better. The trouble is, there are few options available.

Unless the investing public makes it clear what it expects, management has no reason to change.

That’s why Miller’s efforts to quantify management’s concerns about their own welfare compared to their efforts on behalf of shareholders’ are worth looking at.

Miller took the general and administration costs reported by a variety of gold producers and related them to gold output to come up with a “G&A per oz. of gold output” figure and to dividends for a “G&A as percentage of dividend paid” figure.

According to Miller’s numbers, the gold producers who show the greatest concern about their shareholders are Hemlo Gold, Cambior and American Barrick Resources. Their G&A per oz. were $5.66, $8.89 and $15.13 respectively while their G&A as a percentage of dividends were 19.3, 74.1 and 79.7 respectively. On the other extreme are Coeur d’Alene, Battle Mountain and Hecla. After allowing for silver production on a “gold-equivalent” basis of 90-1, their G&A per oz. numbers were, respectively, $69.20, $46.49 and $42.08 while their dividend numbers were 667.1 for Coeur d’Alene and 278.8 for Battle Mountain while Hecla didn’t declare a dividend in 1991.

The figures are admittedly rough, says Miller, and do not take into account such factors as additional management requirements during expansion schemes or major permitting programs. And Hemlo, for example, is able to keep its overhead low by using the facilities of associated companies like Kerr Addison Mines and Noranda Exploration.

Even so, shareholders might find it enlightening to know how management of the companies they own compare.