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Gold Mining Dividends: The Best Is Yet to Come

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According to one analyst, Barrick Gold has the capacity this year to "double their dividend and then again, even more so next year."

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Fourth-quarter and full-year earnings results from four of North America's major gold producers this week revealed a profit boost from last year's rising gold price, but a trio of misses when it came to meeting analysts' expectations.

Kicking off their earnings season after Wednesday's market close, Canadian gold mining giants Barrick Gold (ABX), Goldcorp (GG), Kinross Gold (KGC), and Agnico-Eagle Mines (AEM) ended 2011 with a slew of different results and a few records, but shared similar concerns around rising production costs in 2011.

Canada's second-largest gold producer, Goldcorp reported fourth-quarter net earnings of $405 million, compared with the $560 million it earned in the fourth quarter of 2010. But with impairment charges and tax adjustments out of the equation, adjusted net earnings totaled $531 million or $0.66 per share, which topped analyst expectations of $0.60 for the quarter, according to Thomson Reuters data.

Goldcorp also reported record revenues of $1.5 billion in the fourth quarter, on gold sales of 685,000 ounces, with an average realized gold price of $1,663 in fourth quarter 2011 compared with $1,378 in the same quarter of 2010.

Looking ahead to 2016, Goldcorp is expecting a 70% increase in overall gold production, driven by four new sources of gold production expected to come online.

Meanwhile, reported net earnings at Canada's biggest gold miner, Barrick Gold, remained largely flat in the fourth quarter at $959 million or $0.96 per share, compared to $961 million or $0.97 per share in the same quarter last year.

Barrick's adjusted net earnings rose 15% to $1.17 billion or $1.17 per share from $1.02 billion or $1.02 per share in the prior year period, reflecting higher realized gold prices and copper sales volumes. However, this fell short of analyst expectations of $1.28 per share. Barrick still posted record reported net earnings for 2011 and says it is anticipating its 2012 gold production to be 7.3 million to 7.8 million ounces at total cash costs of $520 to $560 per ounce, with first production at its Pueblo Viejo project in the Dominican Republic expected midyear.

For Kinross Gold, a noncash goodwill write-down of $2.9 billion on the Tasiast mine in Mauritania led to a reported net loss of $2.78 billion, or $2.45 per share in the fourth quarter, compared with a loss of $72.9 million, or $0.06 per share, for fourth quarter 2010. Excluding the charge, adjusted net earnings reached $196.6 million, a 24% increase over fourth quarter 2010. On a per-share basis, net earnings of $0.17, however, fell short of analyst expectations of $0.21.

For 2011, Kinross posted record revenue of $3.9 billion, up 31% on 2010, with its average realized gold price climbing 26%.

As with many of its counterparts, however, Kinross was contending with higher production costs in the fourth quarter, up 16% as a result of increased labor, diesel, and power costs. On a positive note for investors, Kinross did announce a 33% increase in its semiannual dividend. But as a result of embarking on major multiyear campaigns, Kinross and Goldcorp have limited ability to double or triple their dividends in the near term, Dahlman Rose analyst Adam Graf says.

Barrick Gold, he says, could be a different story. "From my numbers, they have the capacity this year to double their dividend and then again, even more so next year," Graf says.

Agnico-Eagle Mines also increased its dividend payout by 25% on Wednesday, although it reported a net loss of $601.4 million, or $3.53 per share for the fourth quarter of 2011, including a $644.9 million partial write-down of the Meadowbank mine in Canada's Nunavut Territory. Meadowbank, which previously had a book value of around $1.7 billion, has seen its value reduced to around $762 million as the latest optimized mine plan resulted in a shorter mine life.

Excluding these items, Agnico-Eagle says net income was $76.2 million or $0.45 per share in the fourth quarter, which was just shy of analysts' expectations.

While Goldcorp turned in a modest beat, and Kinross, Agnico, and Barrick turned in a very modest miss on an adjusted basis, Graf says investors aren't too bothered about whether the gold companies beat or miss the previous quarter consensus numbers.

The key issues, he says, are forward-looking expectations, whether those are going to be above or below market expectations, and costs. Investors will be watching to see whether companies are controlling costs and are able to execute on their growth initiatives on time and on budget.

Investors seemed to shrug off any concerns on Thursday, as all four miners ended that day's trading session in positive territory, with Barrick Gold up 1.6%, Goldcorp posting a gain of 4.8%, Agnico-Eagle adding 7%, and Kinross climbing 7.7%.

The gold company earnings bonanza continues next week, with Yamana Gold (AUY) and Newmont Mining (NEM) expected to release results.
No positions in stocks mentioned.
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