Finding Income and Catalysts In The Gold Mining Industry

In the aforementioned slideshow, Two Fish Management said it thinks that a streamlined Barrick is worth 50% to 100% more than current levels, so there’s a potential for capital appreciation via a breakup as well. Not bad for a stock that offers an above-average dividend yield.

The other side of the aisle, but still in a similar spot

Speaking of Gold Fields, this is a higher-yielding stock that investors can play in this space. The smaller miner pays a 2.9% yield, and it has paid dividends for 15 consecutive years. Aside from being a bit more generous than Barrick, Gold Fields also has more liquidity. Gold Fields’ operating cash to market cap ratio (0.33) is greater than Barrick’s (0.29), and it has halted production at its St. Ives, Agnew (except for its Kim lode here), and Tarkwa (except for its North heap leach here) mines.

While Gold Fields’ footprint is a little different than Barrick’s, its decision to reduce its “marginal mining” operations, as it calls them, is a result of the same headwinds that are facing the industry at large.

Other options

By now, you can see where this is going. If you can find a gold miner that has underperforming assets to shed, or is in the process of boosting efficiency, there’s a potential play. If these stocks pay dividends, it’s even better. A few other gold miners that do offer solid yields and sit in similarly attractive scenarios as Barrick or Gold Fields include: Newmont Mining Corp (NYSE:NEM), AngloGold Ashanti Limited (ADR) (NYSE:AU) and Compania de Minas Buenaventura SA (ADR) (NYSE:BVN).

Newmont pays a dividend yield of 3.5%, AngloGold offers a 1.6% yield and Compania gives investors a whopping 4.7% yield. Earlier this month, Newmont sold its higher-grade Midas mine to focus on its Pheonix and CopperBasin open pit operations. Deutsche Bank’s head of equity research in metals and mining (Americas) Jorge Beristain has mentioned Newmont by name alongside Barrick as candidates to breakup to unearth “hidden value,” and in a similar fashion to Barrick, we see Newmont’s sale or spinoff candidates coming from its lower-performing assets. The company also sold its stake in Canadian Oil Sands Ltd (TSE:COS) earlier this year.

With regard to AngloGold Ashanti and Compania de Minas Buenaventura, the latter has carried out an intense asset-streamlining operation in 2013, while Minas has stopped production in its unprofitable Antapite, Poracota and Shila-Paula mines. Both names are worth further research to dividend-seeking investors looking to play the gold mining industry’s continued fragmentation.

Disclosure: none