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Barrick Gold Corporation (USA) (ABX), Goldcorp Inc. (USA) (GG): Gold Dividends Unsafe

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Gold miners are not known for their shareholder returns. In fact, miners are often criticized for not returning enough cash to shareholders, choosing instead to spend their income on expensive capital projects.

That said, recently miners have changed course and are now offering dividends to shareholders but with some of these yields touching 4-5%, they are way above the market average.

Can they afford it?

Gold Dividends

Company P/E Dividend yield EPS DPS Payout Ratio
Barrick Gold Corporation (USA) (NYSE:ABX) 6 (forward) 4.1% $3.2 (projected) $0.8 25% (projected)
Goldcorp Inc. (USA) (NYSE:GG) 15.9 2.2% $1.8 $0.6 29%
Newmont Mining Corp (NYSE:NEM) 10.1 4.3% $3.2 $1.4 45%
Yamana Gold Inc. (USA) (NYSE:AUY) 22.2 2.4% $0.5 $0.3 50%

As Barrick made a loss last year I have used projected earnings figures in the chart above.

Barrick Gold Corporation (USA) (NYSE:ABX)

Newmont Mining has the highest dividend yield in the group at 4.3% and the yield appears to be well-covered with a payout ratio of 45%, the dividend is $1.4 per share and the company is earning $3.2 per share. Indeed, all four companies look as if they can afford their payouts based on Earnings Per Share (EPS) cover.

But how do their cash flows look?

Barrick Gold Corporation

Metric Q2 2012 Q3 2012 Q4 2012 Q1 2013
Net Operating Cash Flow $783 $1,690 $1,640 $1,090
Capital Expenditures -$1,610 -$1,510 -$1,870 -$1,440
Net Investing Cash Flow -$1,590 -$1,560 -$1,980 -$1,500
Cash Available For Financing Activities -$807.00 $130.00 -$340.00 -$410.00
Cash Dividends Paid – Total -$200 -$193 -$195 -$201
Issuance/(Reduction) of Debt, Net $566 ($8) ($18) $852
Dividend Cover From Cash Available For Financing Activities 0 0.7 0 0
Free Cash Flow -$1,030 -$10 -$429 -$549

Figures in $US Millions. Financing activities include dividend payouts, changes in capital stock and the movement of debt.

Previously the largest gold miner in the world by market capitalization, Barrick Gold Corporation (USA) (NYSE:ABX)’s dividend payout does not appear to be secure. The company has been able to cover its dividend payout with operating cash flow after the deduction of investing activities in only one out of the past four quarters. Indeed, it would appear that the company is spending much more than it can afford on CAPEX.

Barrick Gold Corporation (USA) (NYSE:ABX)Barrick Gold Corporation (USA) (NYSE:ABX) has spent almost all of its operating cash flow on CAPEX during the last four quarters and the dividend payout has been funded with borrowing. The one quarter where Barrick had cash to spare to return to shareholders was Q3 2012, even then the company’s payout was only covered 0.7x times – Barrick had to raid its cash reserves to find the other $63 million it needed to fully fund the payout.

So, based on the fact that Barrick Gold Corporation (USA) (NYSE:ABX) cannot actually afford its dividend , I believe the payout is in jeopardy.

Verdict: unsafe

Goldcorp Inc

Metric Q2 2012 Q3 2012 Q4 2012 Q1 2013
Net Operating Cash Flow $553 $411 $774 $287
Capital Expenditures -$692 -$456 -$895 -$483
Net Investing Cash Flow -$615 -$650 -$650 -$1,080
Cash Available For Financing Activities -$62 -$239 $124 -$793
Cash Dividends Paid – Total -$112 -$105 -$107 -$123
Issuance/(Reduction) of Debt, Net $0 $0 $0 $1,490
Dividend Cover From Cash Available For Financing Activities 0.0 0.0 1.2 0.0
Free Cash Flow -$250 -$150 -$228 -$318

Figures in $US Millions. Financing activities include dividend payouts, changes in capital stock and the movement of debt.

Goldcorp Inc. (USA) (NYSE:GG) recently surpassed Barrick Gold Corporation (USA) (NYSE:ABX) as the largest gold miner in the world by market cap. However, the company is not in a better financial position than Barrick and even though the firm offers the smallest payout of the group, it still cannot afford it.

Only in the Fourth Quarter (Q4) 2012 has the company had enough cash to be able to suitably fund its payout. In the other three quarters the company has had to raid its cash balance to fund the payout or borrow. The company only borrowed in Q1 2013 according to the table above, but the amount borrowed is more than enough to keep the company and payout secure for a year or so)

Overall, Goldcorp Inc. (USA) (NYSE:GG) cannot cover its payout with cash available and needs to borrow to keep funding its dividend payout.

Verdict: unsafe

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