THE world’s gold mining companies are facing a fresh dilemma of whether to spend their new-found positive cash flow on increasing dividend payments, or investing the funds into developing new sources of the metal, said Bloomberg News.
John Hathaway, senior portfolio manager at Sprott Asset Management, told the newswire that gold miners were “gushing cash”, but they would be under pressure to return it to their shareholders. “They are in a position to raise their dividend. And there will be boardroom pressure and shareholder pressure to do that.”
At the same time, however, the world’s gold reserves are beginning to fall. According to a forecast by Mark Bristow, CEO of Barrick Gold, 2019 was the first time newly mined gold production failed to grow. By 2029, gold production will have fallen 30%, even if all new gold mining projects worked out, according to Bloomberg News.
On the one hand, gold miners feel compelled to reinvest their cash, or just conserve it for when the market turns down; on the other, the sector still has to win back the trust of the investment market after years of frittering away funds on expensive projects.
“Miners in general are exposed to significant external factors that are out of their control,” Simon Jaeger, a portfolio manager at Flossbach von Storch AG, a top-10 investor in both Newmont and Barrick Gold told Bloomberg News. “It’s certainly a reason for not paying too much in dividends. You want to have the cash buffer on your balance sheet in order to be financially flexible when prices get worse.”
The best outcome though was to find an appropriate payout return that satisfied investors, whilst keeping enough back for investment in resource renewal.
“If a company has genuine productive opportunities to invest capital in their business at high return, that is always going to be preferable versus paying a dividend,” Josh Wolfson, an analyst at RBC Capital Markets told the newswire.
“But companies which can demonstrate overall discipline by allocating capital effectively – plus paying out cash flow to shareholders – I think will ultimately accomplish the best of both worlds,” he said.
