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More Dividend Cuts Likely in Gold Producers and Miners

Jon C. Ogg

Gold bugs and fans of gold mining stocks are not going to get a pleasant feeling here. Fitch Ratings has a cautious report on what can happen to gold miners and producers even when the London Bullion Market Association is reportedly calling for a recovery in the price of gold. Here is where things get really bad. Fitch stated that it expects gold producers to reassess their dividend policies, and that is after we already have seen some cuts and eliminations of dividends.

Fitch is calling a gold rebound unlikely and saying that it no longer believes in a $1,200 gold price floor. Anyone who opts to buy gold knows that, unlike buying a CD or a money market fund, there is no dividend. That may be the case, or it may be close to the case, soon for more and more gold miners and producers if the price remains there.

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If you do not believe that dividends are a risk at $1,000 or $1,200 (or even at $1,300) just keep in mind that Barrick Gold Corp. (ABX) cut its last dividend from $0.20 down to $0.05. Kinross Gold Corp. (KGC) also suspended its dividend over the summer. Gold Fields Ltd. (GFI) announced in August that its board of directors deemed it prudent not to declare an interim dividend.

Fitch's prior report on gold producers incorporated a base case gold price assumption of $1,200 per ounce for the next two years. Now the group is targeting a stress test scenario of only $1,000 per ounce to see what would happen to corporate credit ratings. The end result is that Fitch thinks $1,000 per ounce would put the ratings of some gold miners under significant pressure if no serious cost cutting and cash conservation measures are taken.

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Note that Fitch has not taken any rating actions as of yet, as the companies have sufficient flexibility to reduce their operating cost base and capex plans. Fitch said:

Our base case price is in line with the industry's 'all-in-sustaining' cost guidance for 2013. However we do not see USD1,200/oz as a price floor because recent price trends have been influenced far more by the use of gold as a financial instrument and a hedge against inflation than by industrial demand. Given the change in sentiment as central banks signal unwinding of economic stimulus, we recognize it is possible that the gold price could find a new floor below this level for an extended period. The gold price has currently settled above USD1,300/oz.

24/7 Wall St. has compiled the highest gold dividends out there for investors. We have included trading ranges and added color if applicable as well. Be advised that these stocks of gold miners and producers were not all the ones mentioned by Fitch, but we wanted to feature the three largest gold dividends out there with market capitalization rates over $1 billion.

IAMGOLD Corp. (IAG) is worth only $1.8 billion, but it leads the pack with a 5.2% dividend yield. Trading at $4.65, its 52-week trading range is $3.81 to $16.88. This company has paid a $0.125 dividend five times in a row, up from $0.10 in mid-2011 and up from $0.06 prior to that. Be advised that the current payout is listed as semi-annual payments rather than quarterly, and there is a long road before the next dividend announcement. In addition, the company and its partners in the Yatela Mine in Mali recently announced that they were suspending mining excavation activities.

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Newmont Mining Corp. (NEM) is worth nearly $14 billion and now pays a dividend yield of 3.6%. Trading at $26.96, its 52-week range is $26.43 to $56.64. This one lowered its dividend from a peak of $0.425 to $0.35 and then to $0.25. What investors need to know is that Newmont always did predicate that its dividend increases in the past were tied to higher gold prices. Its prior dividend was down $0.10 before it began an aggressive hike strategy.

Agnico Eagle Mines Ltd. (AEM) is worth some $4.5 billion and has a 3.3% dividend yield. Trading at $25.56, its 52-week range is $25.00 to $57.35. This company's dividend policy did not start getting aggressive until 2007, and it used to pay annually at far lower rates than now.

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