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Gold producers rush to boost dividends
By Bernard Simon and William MacNamara
Financial Times, London
Sunday, December 11, 2011
Gold miners are rushing to boost their dividends in the hope of wooing investors from gold-linked exchange-traded funds and other vehicles.
In the latest move, Iamgold, a mid-sized producer with mines in west Africa, Canada, and Suriname, announced a 25 per cent increase in its payout on Friday. Iamgold's annual dividend is now 25 cents a share, more than four times last year’s 6 cents payout.
Earlier this month, Goldcorp, another Toronto-based producer, lifted its dividend by 32 per cent, the third increase in little more than a year. Barrick Gold, the world's biggest producer by volume, pushed up its payout by a quarter.
Steve Letwin, Iamgold's chief executive, said that "in the past there was this belief that people buy gold equities for growth only. The management view was: 'We are much better off holding on to the cash and investing it for growth than giving it to the shareholders.' I'm a believer that you can do both, and I think others are seeing that as well."
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Gold mining equities have lagged behind the surge in the bullion price. Barrick shares are one-fifth higher than in December 2009, while the gold price has soared more than 50 per cent, closing on Friday at $1,712 an ounce.
Peter Munk, Barrick's chairman, said in September: "ETFs are wonderful things. But they have taken demand away from gold equities.
"Being the biggest has worked against us," he added. "The bigger you are, the more likely you are to have a strike or to maybe run into environmental problems at any of your mines around the world. So it's thought of as safer for the gold investor to buy an ETF."
Miners are also exposed to volatile costs. With mine expansion and construction activity picking up, Mr. Letwin said that "costs are a clear and present danger. Everyone has his hand out."
Chris Beer, a precious-metals fund manager at Royal Bank of Canada, said that some gold miners had sought to boost shareholder value through acquisitions in recent years. But, he added, "they're just bigger, with more shares -- not necessarily better in share-price performance."
Gold miners' current dividend yields, averaging little more than 1 per cent, are less than half those of oil shares and a third below base metals stocks. Gold miners also traditionally pay out a far lower proportion of their cash flow.
Denver-based Newmont Mining, among others, pledged this year to link its dividend payout to the bullion price.
Even so, Barry Cooper, analyst at CIBC World Markets, told clients in a recent report that "the fascination with gold dividends is a function of the economic times the world is facing. As with most fads, this too will pass."
In Mr. Cooper's view, "Gold companies should continue their struggle to provide growth over cash distribution if left with a choice." According to a recent RBC Capital Markets poll of institutional investors, 63 per cent said raising dividends would be the best way to narrow the divergence between the gold price and equities. Almost a fifth of respondents said nothing should be done, citing a structural change in the relationship between gold and equities, and 12 per cent suggested share buybacks.
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