[miningmx.com] — DID AngloGold’s Mark Cutifani open a Pandora’s Box on
Wednesday by announcing that the company would work to address its low dividend
yield profile, historically about 0.7%?
You can understand why he would do this: in South Africa, gold companies offer
leverage to the gold price and the rand. But if you think about it, that’s always, and
only, predicating returns on some future event.
All companies attract shareholders on prospects, but gold companies specialise in it.
Valuations turn on unmined ounces, for instance. Future production is another
perennial promise of gold miners.
It’s like promising better weather tomorrow. On the rare occasion the sun breaks out,
it’s very quickly time to sell a gold share. That’s how you make money out of gold
stocks and that’s the reason the gold index on the JSE hasn’t moved much in 12
years. The general behaviour is that gold stocks are for trading, not for filing away.
In Cutifani’s vision, however, AngloGold should be a company offering near-immediate
returns as well as leverage.
The trouble is that analysts thought the immediate returns on offer from AngloGold
were not enough. Year-on-year, the dividend was up about 162% (in rand terms).
“Why so stingy?’ asked Johann Steyn of Citi at the AngloGold presentation in which
the group unveiled record cash flow and best ever earnings (including one-off items).
Analysts have similar reservations about the future dividend which, for the current
2012 financial year, will be about R1.00 per share per quarter. “That kind of number,’
said Cutifani.
AngloGold’s defence for not paying out more in dividends is that it has a gold
production growth pipeline to finance, which it hopes will see it produce a quarter
more gold by 2014. It also can’t say, as a price taker, what will happen to the gold
price. Sure, with Europe up the creek, the outlook for the “crisis’ metal looks good,
but one can’t be sure.
So, with a balance sheet to protect in uncertain markets, can a company like
AngloGold ever style itself a dividend yield play?
AngloGold’s current yield is about 1%; still quite modest compared to other non-gold
mining firms. This will be a difficult expectation to manage. Ironically, AngloGold’s
best opportunity to boost its yield will be when it’s over the hump of its capital
projects, which is in two years’ time.
Over the last two days, AngloGold’s share price is down 7%. The market has spoken.
