SYDNEY—U.S. gold producer Newmont Mining Corp. has spent the
past few years overhauling its business by cutting production
costs, buying and selling mines and paying back debts. Now
executives have its dividend policy in their sights.
Gold companies were among the first in the mining industry to
slash payouts to investors as prices tumbled from the record highs
reached earlier this decade. Major diversified mining companies
including BHP Billiton Ltd. and Rio Tinto PLC have more recently
followed suit: Both this year abandoned policies to keep dividends
steady or rising year after year.
For Newmont, however, a turning point is approaching. The miner
expects to reach its internal debt targets two years ahead of
schedule, Chief Executive Gary Goldberg said. He cited
better-than-anticipated gold prices fueled by expectations that the
Federal Reserve will hold off from tightening monetary policy while
other central banks continue to ease.
Newmont, which has mines across the globe including in the U.S.,
Australia, Ghana and Peru, has nearly halved its net debt over the
past three years to roughly US$2.7 billion.
"We have got our debt down" so now "we'll look at modifying our
gold-price-linked dividend policy," Mr. Goldberg said in an
interview in Sydney.
That will occur in the final quarter of the year, he said.
Meanwhile, should gold prices stay high, Newmont's third-quarter
payout could double to $0.05 a share.
Newmont, the world's No. 2 gold miner by output, is the most
likely among the North America-based gold giants to soon return
more cash via dividends or buybacks, Citigroup said in a note on
Aug. 1 as it predicted the miner would end this year with a
stronger balance sheet than its peers.
While Mr. Goldberg said payouts will become a higher priority
than debt repayments, he is less enthusiastic about other forms of
capital management such as special dividends or repurchasing
stock.
"We'd assess those, but I don't see them at the top of the
list," he said. "When prices are high, it is probably not the best
time to do a share buyback."
Newmont has been a top performer on the S&P 500 this year.
Its stock has more than doubled and is at its highest level since
2013.
But dividends are unlikely to return to the heady days of that
year, when Newmont paid as much as $0.425 a share a quarter to
investors.
"We were actually taking out debt at that time and using debt to
pay the dividend, and that's not a situation you want to get back
into," Mr. Goldberg said.
Gold prices have risen roughly 25% in 2016, to about $1,340 a
troy ounce. That is well above the $1,100 an ounce Newmont was
budgeting for this year, said Mr. Goldberg.
In addition to monetary easing, the U.K. referendum to leave the
European Union has aided gold prices this year, as has what Mr.
Goldberg called "an interesting election" campaign in the U.S.
Mine sales have helped Newmont build its cash pile.
In June, the company penned a deal to unload its 48.5% stake in
the operator of the Batu Hijau copper and gold mine in
Indonesia—one of that country's largest copper deposits—to local
company PT Amman Mineral Internasional for $1.3 billion.
Mr. Goldberg said more onerous mining regulations in Indonesia,
particularly rules on processing ore locally, were a factor in its
decision to exit the country. The deal should close this
quarter.
There is "nothing critical" left on the table in terms of
possible future mine sales for Newmont, Mr. Goldberg said.
The miner has previously considered selling the remote Tanami
mine in northern Australia, but after working to increase output
and cut costs, and success in exploring nearby ground, "I don't see
us wanting to exit," he said.
"With prices going up, we haven't heard as much" from rivals
seeking acquisitions recently either, he added.
Higher gold prices have also damped Newmont's desire to pursue
the assets of any competitors. Last year, Newmont purchased the
Cripple Creek & Victor operation in the U.S. state of Colorado
for $820 million, plus a cut of future returns, from AngloGold
Ashanti Ltd. as that miner works to reduce its own debt load.
"Price rises have buoyed the performance of some companies that
were a little more distressed and they are no longer so anxious to
do something," Mr. Goldberg said.
There is one deal that could still be done, though:
Joint-venture partner Barrick Gold Corp. said it wants out of the
pair's Super Pit operation, Australia's biggest open-pit gold
mine.
Newmont took over management of the site last year, at a time
when Barrick has been unloading its interests in the resource-rich
country. The Super Pit is Barrick's last operation in
Australia.
Buying its partner's 50% stake "is an option for us," Mr.
Goldberg said.
"It really depends on the approach Barrick takes in how they
sell the asset" as to whether Newmont will have the right to bid
first, he said.
He wouldn't comment on media reports that estimated the stake
could be worth up to $1 billion, except to say "there's been a lot
of speculation, and I think some of it is pretty optimistic." A
representative for Barrick wasn't immediately available to
comment.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
August 11, 2016 01:05 ET (05:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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