Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Which Gold Miner Will Cut Its Dividend Next?

With all-in sustaining costs of more than $1,200 an ounce, it shouldn't have surprised many investors that IAMGOLD (NYSE: IAG  )  cut its dividend, though the 11% plunge the stock took following the announcement suggests they were anyway.

Because gold miners were never particularly generous with their dividends, they sought more gimmicky ways of attracting investors, such as Newmont Mining (NYSE: NEM  ) and Eldorado Gold linking their dividend to the price of gold or paying it in actual bullion as Gold Resource (NYSEMKT: GORO  ) did. Others like Barrick Gold (NYSE: ABX  ) , Goldcorp (NYSE: GG  ) , and IAMGOLD were wildly hiking their payouts by double-digit percentage increases two years ago.


While that garnered them attention in a rising price environment, the subsequent collapse of gold's market value has led miners to not only sell assets and cut capital expenditures but to cut or eliminate altogether the payouts they made to investors.

In March, Australia's Newcrest Mining suspended its dividend payment, followed in April by Newmont cutting its dividend by 18%, and Barrick slashing its payout by 75% in August. What had once been a portfolio of high-flying stars full of promise as gold marched inexorably to $2,000 per ounce and beyond, has instead become a motley assortment of grubby miners scrounging among the seat cushions to find enough spare change to keep their operations going.

Investors need to ask themselves not only which miner will be next to cut its dividend, but of those who've already done so, will it be enough?

Gold miners as a group are heavily indebted. Barrick has watched its debt mount to more than $15.4 billion and interest payments surge 20% from the year-ago period; Newmont has more than $6.5 billion worth of long-term debt on its balance sheet; and Goldcorp, $2.3 billion, giving them total debt-to-EBITDA ratios of 2.2, 1.9, and 1.4, respectively. But since that's calculated on a time frame that extends back to last December when gold was trading at around $1,700 per ounce, the yellow metal's precipitous 25% tumble since then means those ratios going forward are likely to soar.

The debt-to-EBITDA metric gives us a sense of how flexible the miners can be in meeting the many demands on cash flows they face, with a lower ratio suggesting they'll be able to cope better, particularly as pricing remains pressured. Moody's warned this past summer that gold below $1,300 per ounce would put their credit ratings under review while at $1,200 per ounce or less significant restructuring of operations would need to occur to maintain their ratings.

For those low-cost producers like Yamana Gold (NYSE: AUY  ) that have all-in sustaining costs well below $800 per ounce, weathering the storm should not be a problem compared to those higher-cost producers like IAMGOLD and AngloGold Ashanti whose ASIC hovers near gold's current pricing.

Stock Price Dividend Yield Total Debt/EBITDA ASIC/Oz.
AngloGold Ashanti  $11.80 NA NA 2.5 $1,155
Barrick Gold $16.74 $0.20 1.20% 2.2 $916
Eldorado Gold $5.64 $0.10 1.50% 1.0 $900
Gold Fields  $3.41 $0.14 3.90% 2.5 $1,089
Goldcorp $21.06 $0.60 2.80% 1.4 $992
IAMGOLD $3.43 NA NA 1.2 $1,216
Kinross Gold  $4.59 $0.16 3.40% 0.7 $1,069
Newmont Mining $23.28 $0.80 3.30% 1.9 $993
Yamana Gold  $8.69 $0.26 2.90% 1.1 $730

Source: Company SEC filings, Standard & Poor's Capital IQ.

We've seen that playing out already as the mad dash to acquire gold assets regardless of quality is now leading miners to put their projects on ice. Barrick's Pascua-Lama gold project in Chile has been indefinitely suspended, Anglo American backed out of developing the Pebble copper and gold project in Alaska, and Goldcorp suspended its Cerro Negro project in Argentina.

The bloodletting in gold hasn't finished yet, and despite whatever long-term bullishness there may be for physical gold, it's clear the miners themselves still have a deep hole to dig themselves out of.

Better than gold
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2767150, ~/Articles/ArticleHandler.aspx, 9/25/2016 7:07:03 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
AAUKY $0.00 Down +0.00 +0.00%
Anglo American plc… CAPS Rating: **
ABX $18.11 Down -0.42 -2.27%
Barrick Gold CAPS Rating: ***
GG $16.66 Down -0.43 -2.52%
Goldcorp CAPS Rating: ***
GORO $7.00 Down -0.05 -0.71%
Gold Resource Corp… CAPS Rating: No stars
IAG $4.12 Down -0.19 -4.41%
NEM $39.56 Down -1.21 -2.97%
Newmont Mining CAPS Rating: ***