As a DIY Income Investor, holding gold does not appeal as I expect my investments to 'pay for their keep' by returning an income. Gold just sits there, looking shiny but incurring holding costs - but there's no doubt that it has been a stand-out speculation investment over the past few years.
So, I have been on the look-out for a gold mining share that pays a good dividend; the problem is - most don't. Until now...
African Barrick Gold (LSE:ABG) - one of the FTSE 250 - was spun out of Canadian Barrick Gold Corp., the world's largest gold miner, with an IPO in 2010. ABG is Tanzania’s largest gold producer and one of the five largest gold producers in Africa. It has four producing mines, all located in Northwest Tanzania, and several exploration projects at various stages of development in Tanzania and Kenya.
ABG currently has a yield of 5.9% with a dividend cover of 1.6. But to paraphrase: 'With great yield comes great risk'.
The share price has fallen by over half in the last year, on a continued stream of bad news:
- increased cost of production (this is a relatively expensive source of gold at $949 per ounce sold in 2012 versus $692 in the previous year)
- increased royalty payments to the Government
- lack of reliable power infrastructure
- loss of long-term employees due to pension changes
- declining reserves
- failed sale to the Chinese
- big impairment charge
The more you look at the more depressing it seems - but that is why the yield is so high.
First, the dividend has been confirmed and this dividend is paid in US$ (helping to diversify currency risks for a UK investor). As the 2012 Annual Report notes: 'While our operational and financial performance in 2012 has been lower than the previous year, we recognise the importance of rewarding ongoing support from our shareholder base. For this reason, the Board has recommended that the total dividend for 2012 be maintained at the 2011 level ..."
When you consider that 74% of the shareholders are (were?) Barrick Gold, you understand why.
Second, this is a big operation with potential - it just needs some focus and pro-active management to drag this underperforming business out of the spoil heap. A plan is being hatched, we are told. The reason this was not done before is probably that Barrick thought they could unload the lot on the Chinese.
I'm not really a 'price chart' investor but you shouldn't ignore the trends. The 5-year Sterling price chart shows a steady decline, accelerating noticeable in 2013. There was recently a 5% jump (on a favorable broker's note) followed by a 5% drop - when I bought: probably too soon but this share goes ex-div on 1 May, so I didn't want to miss that.
So, the key question is: who's doing all the selling at the moment? Yes, gold dropped through the floor, for a day, which spooked the market for gold and gold miners. Then again, this is a serial disappointer. I hope that Barrick are not trying to recover some cash from the market with a selling programme (it seems to have a lot of other problems) - however, given that they didn't drop their price for the Chinese, this seems unlikely.
The main thing is - I now own part of a gold mine! (several really) - yielding nearly 6%! What's not to like!
[Purchase price: £1.80]
Update 6/11/13 - Being a crypto gold bug is ioo stressful! I have sold out at a bit more than my purchase price.
I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.