Since 2006, gold prices have climbed 200% even as major gold stocks have been flat over the same period. This is simply because, with the climbing of gold prices, the miners who were into yellow metal found marginal mines too attractive and invested significantly in them.
But before the output could show up, these mines were made to be money drains as gold prices came down. This affected the balance sheet performance of the miners even as they were increasingly ditched by investors.
Now the tide could turn as two mining companies—Endeavor Mining Corp and Evolution Mining--have suggested to pay dividends in gold! This, they think would help investors run to gold stocks disentangling them from the lure of bullion and ETFs.
“We can’t pay a dividend while we’re borrowing money, but when we do, we will pay it in gold. People will love it. They could take it in cash if they wanted to, but we produce gold and that should be our currency.” Endeavour’s Woodyer was quoted by The Australian as saying.
Evolution Mining too intends to revolutionize the way dividends are paid.
The miner handed down net profits to the tune of $40.7 million recently for the first half of the year said that it would set aside around 2 per cent of its gold production for dividends.
"We are trying to do things slightly differently, and we were one of the first Australian companies to report all-in cash costs (rather than lower cash costs that ignore a number of expenses)," said Chief financial officer of Evolution Mining, Tim Churcher to The Australian.
"We're trying to get ahead of the curve on this as well and be the first to respond to investor concerns, and say 'we hear you, we acknowledge your concerns and we're trying to react accordingly'” he added.
Investors have been frustrated throughout due to stock under-performance and the new measure may bring them back to the fold, he hoped.
Will it?
Subsequent to the news Evolution scrip shed 8 cents to touch $1.27.
Since gold has lost its safe haven appeal as economies around the world are disseminating early signs of recovery, this initiative may not appeal to the investor community beyond a point. If gold prices had been up and the safe haven demand still persisting, the measure would have been mind blowing. But in such a scenario, the question of this incentive would not even arise! This is a chicken and egg situation!
There also exists another problem: with many thousand share holders, big companies may not ever get a chance to replicate this model. Transferring bullion bars to all investors could prove to be a security night mare.
The evolutionary endeavour thus may well be short-lived and would not find a large-scale cloning.
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