NEW YORK (Reuters) - Gold producer Newmont Mining Corp (NEM.N) will pay a dividend linked to gold prices to attract investors who have been flocking to exchange traded funds (ETFs) as bullion prices soar, its chief executive said on Thursday.
“Here’s the idea: shareholders should get real returns when gold prices go up,” Richard O’Brien told Wall Street analysts at Newmont’s annual investor day. “We are seeing ETFs outperform most of our peer group.”
Gold ETFs, which track the price of the precious metal, give investors a way into the gold market electronically, without physically buying bullion or gold company shares.
They have become popular in recent years as the price of gold has risen steadily. On Thursday, spot gold hit a record of $1,464.80 an ounce.
O’Brien said the popularity of ETFs sometimes obscured investors’ appreciation of gold company profits. “Cost escalation outran the gold price and investors did not see that bottom-line performance.
“With strong balance sheet and cash flow, we are positioned to fund profitable growth and to pay a new gold price-linked dividend,” O’Brien said.
Newmont said it expects to pay its first such dividend on June 29, based on the No. 2 gold producer’s average realized gold price for the preceding quarter. It paid a quarterly dividend of 15 cents per share on March 30.
“We are going to put cash flow where our mouth is,” said O’Brien, noting that the annual payout will grow by 20 cents per share for each $100 per ounce rise in the average realized gold price. At $1,400 to $1,499 per ounce, Newmont’s annual dividend would be $1.00 per share, he said.
Last month, O’Brien told the Reuters Global Mining and Steel Summit that volatility spawned by currency movements and Middle East political turmoil will see gold trade in a range of $1,350-$1,500 this year.
Newmont shares have trailed the Arca Gold Bugs Index .HUI since the start of the year. But they rose 3.2 percent to $58.27 on the New York Stock Exchange early Thursday afternoon.
Newmont also said on Thursday it aims to raise gold output by more than a third by 2017 by developing its global assets, and to double copper production to 400 million pounds.
It estimated 2011 gold production of 5.1 million to 5.3 million ounces, along with 190 million to 220 million pounds of copper, often a byproduct of gold mining.
O’Brien said Newmont’s 2012 production would be “flat-ish” but on an “upward slope” the following year.
Much of the increase will come from expansion of projects in West Africa and operating improvements at Denver-based Newmont’s new Boddington mine in Western Australia, which had disappointing results in its first year.
“Job No. 1 at Boddington is to get mill throughput up to its optimum state, and to get to our original target of around 800,000 ounces per year.”
The company expects to double gold production in Africa and increase its overall copper production in the coming years.
In Ghana, Newmont is developing its Akyem project, which O’Brien expects to produce 400,000 to 500,000 ounces per year in addition to the 500,000 produced at Ahafo, also in Ghana.
Newmont also just acquired Canada’s Fronteer Gold Inc for C$2.3 billion, giving it added gold from mines in Nevada.
Although the vast Yanacocha mine in Peru is in decline, O’Brien said Newmont was looking at further expansions in South America, including potential opportunities in Surinam.
Additional reporting by Krishna N Das in Bangalore; Editing by Maju Samuel, Vyas Mohan; Editing by Richard Chang