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A Troubling Trend Emerging in the Gold Industry

http://www.fool.com/investing/general/2013/07/21/will-the-dividend-be-golds-next-debacle.aspx

Rich Duprey
July 21, 2013

This past April, Newmont Mining (NYSE: NEM) cut its payout to investors by almost 18% to $0.35 a share. Last month, Australia's Newcrest Mining said it was suspending its dividend payment for the last quarter of its fiscal year. And on Tuesday, Eldorado Gold (NYSE: EGO) said it was halving its exploration budget, slashing its capex budget by more than a third, and at its next board meeting would take up consideration of the miner's dividend policy. 

If gold prices don't recover soon, expect more miners to follow suit, particularly those with high debt and capital requirements such as Barrick Gold.

Budgets for gold miners were set when the metal's price was much higher, but now that they've tumbled, there are few options left. Hitting the capital markets doesn't look palatable at the moment as a means of raising money, since their stock prices are already in the basement, and while many began cutting their capital budgets, they've also pushed further out their production schedules as a means of conserving cash. Now the only piggy bank they have left to stick their hands into are their dividend payments.

Like Newmont, many miners adopted a dividend policy that was linked to the price of gold. Very cool for investors when gold was regularly hitting new highs, not so much now that the yellow metal's price has been hit hard. When it cut its payout earlier this year, Newmont said it was based on an average first-quarter price for gold of $1,632 per ounce. Yesterday gold closed 22% lower from that level at $1,274 an ounce.

The same thing happened in May to silver miner Hecla Mining (NYSE: HL), when it was forced to hack its dividend 80% to account for silver's new lower value of around $29 an ounce. The payout fell from $0.0125 per share to $0.0025, and silver has tumbled further, closing this past week below $20 an ounce.

In addition to the precious metal-linked dividend,