Are Gold Miner Dividends Sustainable?

Although the gold price has proved volatile in recent months, many gold miners continue to offer investors an attractive dividend. But is it sustainable?

For investors looking for a dividend from the large cap gold miners, the last decade and a half has proved fruitful. Frank Holmes, CEO and chief investment officer of US Global Investors, recently noted that the world’s top 20 gold companies have increased their dividends at a compound annual growth rate of 16% over the last 15 years, while gold only rose 12% annually over the same period.

At the moment, Barrick Gold’s (NYSE:ABX) dividend yield is 3.90%, while Goldcorp’s (NYSE:GG) dividend yield is 2.07%, Newmont Mining Corp.’s (NYSE:NEM) dividend yield is 4.09%, and Kinross’s (NYSE:KGC) dividend yield is 2.48%.

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The miners themselves were optimistic about dividends heading into this year. According to PwC’s 2013 global gold price report, 100% of senior miners surveyed planned to use cash to continue to pay dividends this year, with 80% saying that they planned to increase the proportion of profits paid as a dividend.

Indeed, speaking about the climate for M&A in the gold space at the Bloomberg Canada Economic Summit last month, Barrick Gold president and chief executive officer Jamie Sokalsky said that investors are hoping for free cash flow, which he said they would perhaps rather see “returned to them in a higher dividend at some point.”

All else being equal, dividends from the gold miners do help mining equities look more attractive to gold ETFs, explains Elizabeth Collins, director, basic materials equity research at Morningstar.

“But unfortunately for gold mining equities, gold ETFs provide leverage to gold prices without the added headaches of cost inflation, production level disappointments, and political risk,” she adds.

This week, Australia’s Newcrest Mining (ASX:NCM) announced that, as a result of a reduction in profitability for the 2013 financial year following a sharp decline in the gold price, it expects that it will not pay shareholders a final dividend.

The company notes that as growth in production and earnings continues from two of its mines over the coming years, and costs and capital expenditures are reduced further, it “is confident it will be well-positioned for both an accelerated reduction in debt levels and a return to dividend payments.”

Back in April, Newmont Mining — which uses a gold price-linked dividend policy, with each quarterly dividend based on the company’s average realized gold price for the preceding quarter — cut its dividend to $.35 per share, based on the average London PM Fix of $1,632 per ounce for the first quarter of 2013. In February, the company’s quarterly dividend was 42.5 cents per share based on the average gold price of $1,718 per ounce for the fourth quarter.

Certainly, the ability of many miners to continue to pay an attractive dividend depends on the gold price’s moves. Earlier this year, RBC Capital Markets ran a “downside stress test” on North American gold producers, to see how robust miners’ balance sheets are. While the test found that most of the companies appear to be able to weather gold prices of $1,500 or $1,4000 per ounce, at $1,200 per ounce, within 24 months most companies would have to cut capital spending and dividends.

“I think many gold miners’ dividends are sustainable as long as gold prices don’t fall. Many miners are cutting back on exploration and capital expenditures in order to boost free cash flow and return more cash to shareholders. However, many gold miners’ dividend levels are either directly or implicitly linked to gold prices. So if gold prices fall, so too would dividend levels,” says Collins.

Source: http://www.minyanville.com/trading-and-investing/commodities/articles/GG-NEM-ABX-KGC-NCMAX-gold/6/7/2013/id/50235

India Central Bank Prohibits Sales Of Gold Coins

Two weeks ago, with its current account getting crushed by relentless gold imports, India‘s finance minister Chidambaram literally begged the people to stop buying gold. Judging by the popular response, the ongoing physical shortage, and last night’s increase in Indian gold import duties from 6% to 8%, appealing to people’s feeling when it comes to the choice of fiat vs physical, has failed miserably. So the FinMin Chidambaram has decided to escalate.  Per Reuters: “The Reserve Bank of India has advised banks against selling gold coins to retail customers, Finance Minister P. Chidambaram said on Thursday, a day after he raised gold import duty to try to ease pressure on India‘s bloated current account deficit.” Well, if there ever was one sure way to send demand for any product through the roof (guns, ammo, etc), it is for the government to prohibit its outright sale. What follows next, almost without fail, is a panicked, chaotic buying scramble.

Gold imports by India, the world’s biggest buyer of bullion, surged to
162 tonnes in May — more than twice the monthly average in the record
year of 2011.

“I think the Reserve Bank has advised banks that they should not sell gold coins,” said Chidambaram, while speaking at an event in Mumbai.

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Chidambaram also urged banks to advise their customers not to invest in gold.

Why? If it is not clear by now, here is the explanation: there is simply not enough gold to satisfy demand at the current artificially downward-manipulated price, no matter what propaganda script is being spun on Verizon TV at any given moment. And with India‘s idiotic decree, even more gold will be purchased at these prices.

Dear India – here is a simple way to limit demand: price.

Petition the central banks to allow gold to price based on price discovery, or as it is also known supply and demand. Because if gold were to cost $2000,$5000, $10,000/oz then all problems resulting from excess demand would immediately disappear and India‘s current account would be back to normal.

Of course this will not happen, as the crumbling facade of the imploding fiath based regime would immediately peel away. So back to gold capital controls and other ad hoc made-up measures guaranteed to not only fail but push the price of physical gold much higher.

Source: http://www.zerohedge.com/news/2013-06-06/india-central-bank-prohibits-sales-gold-coins

Fund Managers Are Now Buying Gold With Their Own Money

With the dollar moving solidly lower and gold and silver rebounding, today acclaimed money manager Stephen Leeb told King World News that more and more fund managers are telling him they are buying physical gold with their own money, not GLD, and they are storing it themselves or in a vault outside of the banking system. Below is what Leeb had to say in this powerful interview.

Leeb: “We have the US dollar down over 1% today and gold has reacted by moving firmly above the $1,400 level. Silver is also moving higher. I think the question now is how fast are the metals going to advance? That will depend on a number of things, but one thing is certain and that is the selling is over.

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Gold is going to be the single most important currency in the world going forward. That’s the way it is headed. One of the catalysts which may ignite the gold price would be if things erupt in the Middle-East. If we move aggressively into Syria then you are talking about Russia, the US, Iran, etc….

“Who knows what would happen in that environment? Oil could become very scarce in a very short period of time. But the bottom line for investors is the only way they can protect themselves and emerge from all of the coming chaos over the next several years, and with enough capital to secure a decent way of life, is through gold.

As I continue to speak with fund managers, more and more of them are telling me they are buying physical gold, not GLD. These people are taking their own money, buying gold and literally storing it themselves or in a private vault outside of the banking system. This is with their own personal money. What does that tell you?

I have never been one to distrust government, but more and more I am getting to that point. When you look at what’s happening in this country, many things are in the interest of powerful corporations and not in the interest of the country itself.

Source: http://www.kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/6/6_Fund_Managers_Are_Now_Buying_Gold_With_Their_Own_Money.html