Investors mull Newmont dividend, stock performance
SAN FRANCISCO (MarketWatch) --
Newmont (NEM) , the world's second-largest gold producer after
It also said it revised its gold price-linked dividend policy from its average realized gold price to the average London P.M. fix price for the preceding quarter, which was at $1,609 in the second quarter.
The dividend represents an increase of 17% over the prior year's quarterly dividend and it's the fourth time during the last year that Newmont has increased it, said Chief Executive Officer Richard O'Brien, in the press release issued Tuesday.
"The major gold miners are starting to pay meaningful dividends and this should attract a new constituency of investors, as well as provide support at some price level to the shares," said Vedant Mimani, lead portfolio manager of the Atyant Capital Global Opportunities Fund, a precious metals-focused fund based in Miami.
"The curve ball is a function of the Bush tax cuts expiring at year's end and Congress still unresolved on tax policy including dividend tax rates," he said. "So the resultant question is what does the dividend rate need to be in order to satisfy the market."
Mark Leibovit, chief market strategist at VRTrader.com said he believes Wall Street "wanted the payout as much as investors just to compete with the current dividend mentality that has been popular."
Newmont's dividend yield compares favorably to some other mining companies. Leibovit, who trades mining companies on occasion, including Newmont Mining, points out that, for example, Barrick Gold has a dividend of 80 cents per share, which equals a yield of around 2.3%.
"Whether it's just a straight dividend or linked to the price of gold, it's important that shareholders get some cash in their hands," said Holmes Osborne, a private money manager and principal of Santa Monica, Calif.-based Osborne Global Investors.
Still, "investors should be more concerned about the miner's price than the dividend. Miners are volatile," he said.
Share prices fall
During Friday trading, shares of Newmont fell 5.8% to $43.42. They're down over 27% year to date and over 10% lower for the month.
The Greenwood Village, Colo.-based miner, late Thursday announced a cut the top end of its previous 2012 outlook for gold production by 100,000 ounces to a range of 5.0 million to 5.1 million ounces. It also lowered its copper output estimate by five million pounds to a range of 145 million to 165 million pounds.
"Big miners are running out of 'inventory'," said Leibovit."They are depleting their assets and need to make acquisitions … I would like to see NEM make some significant acquisitions."
Looking ahead, on a technical basis, Newmont's stock could push a bit lower, possibly to $42 or the high $30s "based on present patterns, but I'm watching for an opportunity," he said.
Newmont's second-quarter earnings, meanwhile, fell to 59 cents a share from 90 cents a year earlier, excluding special items, as revenue fell 6.5% to $2.23 billion. Analysts polled by Thomson Reuters were expecting a 93 cents per-share profit and $2.52 billion in revenue. Read more on Newmont's results.
"The gold companies must continuously balance investors' demands for short-term profits with the long-term goals of the business, which dictate mining lower grade ore at higher gold prices, and project pipeline expansion," said Sonny Tahiliani, managing director at MacroMoves, a New York-based consultancy.
Commodity price declines
Unfortunately, that may be tough to do given volatility in commodity prices.
"All commodities eventually drop in price. It's the nature of the business," Osborne said.
This past quarter commodity prices declined, and wage inflation for skilled workers and lower-processed ore grades will impact many of the mining majors, said Tahiliani.
For the quarter ended in June, the Thomson Reuters/Jefferies CRB Index (CRY) , an overall measure of commodities markets, fell 7.9% from the prior quarter. Gold futures (GCQ2) lost 4% in the second quarter.
Against that backdrop, mining company "investors will want to see that the traditional financial metrics, such as free cash flow, are not suffering terribly," said Tahiliani. But "there will be an inflection point in the future when gold reserve growth, instead, will become more meaningful."
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