It is simply not enough to just pay close attention to the gold miners you may own or have interest in acquiring. To truly claim to have performed due diligence, a survey of the industry's broader trends is absolutely required. Toward that end, the major miners provide the standard by which you can assess the performance of your selected gold stock(s), and also an indispensible overview of key trends impacting the industry at large.
Margins rising faster than costs
You don't have to own shares of Barrick Gold
At the same time, Barrick last week cited "inflationary cost pressures" as a factor in its expectation that total cash costs could increase by 10% during 2012. Considering those powerful cost pressures -- along with Barrick's enormous $7.7 billion all-cash deal to acquire copper producer Equinox Minerals earlier this year -- I trust that Fools appreciate the bullish signal for gold investors that's inherent in the miner's latest dividend increase. The move conveys a confident outlook for further gains in the price of gold going forward. More specifically, it suggests that the company expects those price gains to out-muscle cost pressures to yield more of the impressive margin expansion recently observed within the industry.
During the third quarter, Barrick saw its net cash margin expand sequentially by more than 20% to reach $1,415 for every ounce of gold it sold. In other words, in just the past quarter Barrick saw its per-ounce profitability expand sufficiently to absorb twice the anticipated increase in cash costs for all of 2012! Year-over-year, that margin expanded by an astounding 51%. While these cash margins do not consider acquisition or development costs, they still portray how this secular bull market for gold has allowed for enhanced profitability amid a very challenging cost environment. Back in the second quarter, rival Goldcorp
The race to lure stymied investors
Because that rapidly increasing profitability has generally failed to result in convincing gains among shares of gold's major miners, these behemoths face palpable pressure from investors to bridge the gap with aggressive dividend increases. Newmont Mining
Correspondingly, silver miner Hecla Mining
Frankly, Barrick's 25% dividend increase feels tame by comparison, and Goldcorp's decision to delay its own likely dividend increase until after the company completes its "mine planning and budgeting process currently under way" will only serve to raise the expectations surrounding that move. While the majors clearly set the bar in this regard, investors I speak with are hungry to see profitable producers adopt this trend of expanding dividend yields -- even as they seek to provide for expanding production amid rising all-in costs of production.
With further distress in the eurozone virtually guaranteed, in my opinion, I maintain that investors can ill-afford not to allocate some of their investment capital to gold or gold miners to protect it from the further devaluation of key currencies that's likely to result from the next chapter of this global financial maelstrom. Contrary to the popular myth, gold can pay dividends, and in fact seasoned gold investors expect to see them increasing further. It's a lot to ask for, but as gold continues to march higher, so too will the expectations of currently underwhelmed gold investors.
Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Agnico-Eagle Mines, Coeur d'Alene Mines, Goldcorp, Hecla Mining, and Yamana Gold. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.