Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Will All Gold Mining Companies Start Cutting Dividends Soon?


One gold miner is reducing its dividend to shore up its capital budgets during the metal's collapse, which may set a trend among some of its peers.

More bad news for gold mining companies-although not for all miners: Newmont Mining (NYSE:NEM) cut its dividend by 17.6%.

Now, a dividend cut of any sort is extremely unusual. Boards of directors consider a dividend carefully before instituting one because they know that investors take a dividend increase or decrease as an important sign from inside the company about its long-term prospects.

A 17.6% dividend cut, then, is a big deal. Both because companies go out of their way to avoid sending out such a negative signal, and because 17.6% is a big cut. So what's going on here?

It's called a funding gap. With the price of gold plunging from $1,778 an ounce in October to the neighborhood of $1,400 an ounce last week, some gold mining companies are facing a cash crunch.

These companies set their capital spending plans to explore and develop new sources of gold, and to expand existing mines, based on selling their current production at $1,600 or $1,700 an ounce. Now that gold is so much lower, the companies face a series of unpalatable alternatives:
  • They can cancel or postpone current spending (and take a beating in the stock market as analysts cut their estimates for future production).
  • They can raise money in the capital markets, and so either add debt or dilute current shareholders by selling stock.
  • They can cut dividends, take cash that would have gone to shareholders, and use it to fund capital spending.
That looks like what Newmont has decided. The company was one of the first gold mining companies to increase its dividend in order to compete for the investor dollar against gold and gold ETFs that didn't pay a yield. Before the announced cut, Newmont was paying a 4% yield.

And there are other gold miners that might be facing this kind of crunch, and might look to cut dividends-if they pay any. Deutsche Bank put together a short list that included Barrick Gold (NYSE:ABX), Kinross Gold (NYSE:KGC), and of course Newmont Mining. On average, Deutsche Bank cut its target prices for these stocks by 30%.

Editor's Note: This article was written by Jim Jubak of MoneyShow.

Below, find some more great investing and trading content from MoneyShow:

The Week Ahead: Will Overseas Markets Lead the Way?

A Commodity ETF Growing Like a Weed

Trading NYSE vs. NASDAQ Stocks

Twitter: @TopProsTopPicks
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos