Gold prices have had a good year, rising some +25%. In the last month though, gold has dropped about –8% from its peak and could fall further. Lower levels of fear for a ‘double-dip’ recession is the driver of lower gold prices.
The effect on gold miners and mining stocks looks like it’s already being felt. Newmont Mining Corp. (NYSE: NEM) reported second-quarter EPS of $0.77 on revenue of $2.15 billion, significantly higher than the same period a year ago when EPS came in at $0.33 on revenue of $1.6 billion. The problem is that analysts were expecting EPS of $0.84 and revenue of $2.2 billion per Thomson Reuters consensus data. To offset the miss, Newmont doubled its quarterly dividend to $0.15 per share.
This new hike now gives Newmont a yield above 1% for a dividend. That may seem low, but that is high for a gold producer.
Gold miners Goldcorp Inc. (NYSE:GG) reports earnings after market close today, and Barrick Gold Corp. (NYSE: ABX) reports earnings tomorrow. Goldcorp is expected to post EPS of $0.28 on revenue of $899.87 million, and Barrick is expected to report EPS of $0.72 on revenue of $2.61 billion.
Dividends from gold miners are notoriously small. Goldcorp pays a monthly dividend of $0.015/share, for an annual payout of $0.18/share. Barrick’s most recent quarterly dividend is $0.20/share. Royal Gold, Inc. (NASDAQ:
RGLD) pays $0.09/share quarterly. In contrast, the Gabelli Global Gold, Natural Resources & Income Trust (AMEX: GGN) paid a total quarterly distribution of $0.42/share for the first quarter of 2010 due to its call options writing.
Further evidence of weakness in the gold market comes from The SPDR Gold Shares ETF (NYSE: GLD), which has reduced its bullion holdings from a record 1,320.44 metric tons to 1,301.74 metric tons so far in the month of July.
Newmont’s cost of sales for gold was $492/ounce for the second quarter, and the company expects to lower that to a $460-$480/ounce in the third quarter. Average realized gold prices are expected to fall from $1,200/ounce in the second quarter to $1,100/ounce in the third quarter. The company did not change its production estimate, sticking with equity gold production for the year of 5.3-5.5 million ounces.
The near-term future of the gold miners depends to a large degree on how investors view the global economic prospects. A lot of bad things could still happen, even though the most recent news from Europe and strong corporate earnings have brightened things up a bit.
Newmont shares are down about -0.6% in early trading this morning. After a huge run higher in the price of gold, it would not seem unreasonable that gold producers struggling to meet earnings might need to stress how they can boost their dividend payouts if they choose to.
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