Commodities & Metals

Why Gold Miners Barrick and Kinross Could Raise Dividends Even Higher

Barrick Gold Corp. (NYSE: GOLD) reported third-quarter 2020 earnings before markets opened Thursday. For the quarter, the gold miner posted adjusted earnings per share (EPS) of $0.41 on revenue of $3.54 billion. In the same period a year ago, the company reported EPS of $0.23 and revenues of $2.68 billion. Third-quarter results also compare to the consensus estimates for EPS of $0.32 and $3.34 billion in revenues.

Barrick also announced a quarterly dividend increase of $0.01 per share (12.5%) to $0.09, or $0.36 annualized. This is the company’s third dividend raise in the 2020 fiscal year and represents a 44% dividend hike since the end of 2019. The company paid $141 million in third-quarter dividends, more than double the amount the mining giant paid in the same period a year ago.

Year over year, revenue rose 32% and net profit rose by 147% to $882 million on the strength of realized gold prices that were up 12% (about $200 an ounce). Cash flow from operations rose 80% to $1.86 billion and free cash flow rose by 150% to $1.31 billion.

Barrick’s realized gold price for the quarter was $1,926 per ounce, up 30% year over year and 12% sequentially. Barrick sold 1.25 million ounces of gold in the quarter, down 5% year over year but up 2% sequentially. Total cash costs per ounce fell by 2% year over year to $696 and all-in sustaining costs also fell by 2% to $966 per ounce.

Spot gold traded at $1,947.80 shortly before noon on Thursday. The 52-week range for gold pricing is $1,446.20 to $2,089.20. Gold futures for October of 2021 were trading below the top end of the current 52-week range at just over $1,950. To gold traders, that indicates a flat or slightly declining price outlook.

But equity investors are delighted with Barrick’s results and with the 2.8% increase in the price of gold in Thursday trading. Added to results reported Wednesday afternoon by Kinross Gold Corp. (NYSE: KGC), all golden boats are getting a lift on Thursday.

Kinross reported third-quarter sales of $1.13 billion, a 29% year-over-increase, and net earnings of $241 million, up by a factor of four over the third quarter of last year. All-in sustaining costs fell by nearly 9% to $934 per ounce of gold. Kinross shares traded up more than 8% on Thursday.

The VanEck Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ) traded up about 7.5% Thursday at $58.27, and the VanEck Gold Miners ETF (NYSEARCA: GDX) traded up more than 6%.

While gold mining shares are rising, gold flows into ETFs continue to be strong. According to new data from the World Gold Council, holdings of gold rose by 20.3 metric tons in October, the 11th straight month of year-over-year increases. The total increase is the lowest since last December and far below the April inflow of 176.7 metric tons. So far in 2020, global holdings of gold have increased by about 26% to 3,899 metric tons.

Investors’ appetite for gold could remain strong even after the results of the U.S. presidential election are determined. The resurgence of coronavirus infections and a slowing (again) global economy are unlikely to disappear overnight, no matter who wins. And a safe haven is, after all, a safe haven.

In the first half of the year, the company’s realized price for gold is up 26%, from $1,312 per ounce in the first half of 2019 to $1,657 this year.

Barrick did not provide earnings and revenue guidance, but analysts are forecasting fourth-quarter EPS of $0.34 on sales of $3.46 billion. For the full year, the EPS estimate is $1.04 and revenue is pegged at $12.1 billion.

Neither did Kinross provide earnings or revenue forecasts, but analysts expect fourth-quarter EPS of $0.26 and sales of $1.28 billion. For the full year, estimates call for EPS of $0.71 and sales of $4.22 billion.

In the noon hour Thursday, Barrick shares traded up just over 7%, at $29.34 in a 52-week range of $12.65 to $31.22. The consensus price target on the stock is $34.23, implying a potential upside of around 16.7% to the current price. Barrick’s dividend yield is 1.15%.

Kinross stock traded up nearly 8% to $8.75, in a 52-week range of $2.72 to $10.32. The price target on the stock is $12.53, which implies a potential upside of 43% to the current price. Kinross pays a dividend yield of 1.46%. The company just reinstated its dividend in September.

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