Can gold miners’ big profits lead to big dividends?
London (Aug 18) Dividends and miners have been uncomfortable bedfellows of late, but this earnings season has highlighted the prospect for better income from miners of one commodity in particular: gold.
This year started on a fairly desperate note for the sub-sector, with several gold miners struggling to bring their costs below a six-year low in the price of the yellow metal. Fast forward seven months, and with prices hovering around $1,340 (£1,033) an ounce and forecast by several investment banks to push above an average of $1,400 in 2017, investors are hoping to see some of the piles of cash currently being generated.
"The recent market environment for precious metals has been far more positive than any time in the past three years," said mining veteran Eduardo Hochschild this week, as his company re-introduced an interim dividend representing 25 per cent of net earnings. Hochschild Mining
(HOCH) may have benefited from the newly-minted Inmaculada mine and exposure to a silver price which has outperformed gold this year, but it is not alone in rewarding shareholders now that the sun is shining.
The recent market environment for precious metals has been far more positive than any time in the past three years”
Last week, Egypt-based peer Centamin
(CEY) more than doubled its interim dividend to 2¢ a share, and with its cash position 41 per cent up on December, raised the prospect of a further hike in the full-year pay rate. Meanwhile, Russia and Kazakhstan-based Polymetal International
(POLY) - which has a good record of paying special dividends - recently said price and production increases should lead to "significantly stronger" cash flows than 2015, when it paid out 51¢ a share, including specials.
(RRS), which this month disappointed investors after posting a drop in half-year production, has nonetheless signalled its intention to increase its shareholder returns once net cash hits $500m, which at current prices looks likely in the next 12 months. Fresnillo
(FRES), which generated enough free cash to quadruple its interim dividend, could repeat the feat at the year-end, though the effect on the share price may be negligible given the current lofty PE valuation.