The history of gold mining has been littered with discoveries of gold of unimaginable value, but not all of finds have proven to be quite what was initially thought.
For example, a 16th century discovery of pyrite—Fools’ Gold—in Canada led to a series of expensive and futile expeditions underwritten by Queen Elizabeth I of England.
And in the late 1990s an Indonesian gold “discovery” saw a gold mining company’s market capitalization soar past $4B. The claims were exposed as false but not until the discovery had been described as the find of the century, and institutional investors had lost significant sums.
A highly-entertaining film, “Gold,” was made in the aftermath of that case.
The governance of our FTSE Gold Mines Index Series is rather more mundane than the Hollywood narrative, but the starting point is the imperative that any index reflects the universe of securities it is intended to replicate. These indexes are the foundation for benchmarking purposes, and as tools in the creation of a wide variety of financial products, such as index-linked funds, and the growing range of exchange traded funds (ETFs) and derivatives contracts.
- In this case, the index is designed to be a broadly-based international of all gold mining companies with a sustainable attributable share of production from mining in situ ore of 300,000 ounces a year or more.
- The index Ground Rules have just been clarified to require that that any candidate or member of the index must produce 75,000 ounces per quarter for two consecutive calendar quarters or 150,000 ounces during a six-month period.
- In order to preserve the purity of the index, we also stipulate that to be eligible for the index series, each participant derives 51 per cent or more of its revenue from mined gold. That revenue data will be taken from the latest available audited annual report.
It’s the role of the FTSE Gold Mines Index Advisory Committee to review the suitability of the index rules, as well as providing guidance for FTSE Russell on the universe of companies that FTSE Russell should monitor with respect to future inclusion. Our committee members, in the course of their day jobs, will be in contact and, in some cases visit, operating mines all over the world. They will meet management and mining teams; look at the extraction process—how the fragments of gold are dug out of the ground; and the chemical processing in which rock and ore are eventually transformed into gold.
So it is fair to say that in order to ensure the FTSE Gold Mines Index Series provides investors and analysts with an easy and reliable way to track the performance of gold mining companies’ shares, our committee members will literally put boots on the ground.
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