HOLLYWOOD, Florida – Gold miners have largely been boosting dividends to appease long-suffering shareholders rather than funding fresh exploration projects needed to grow production, a strategy that executives are warning may pose long-term risk to the industry.
The tension comes as gold prices are at the highest in seven years, near $1 650 an ounce, a surge in part fueled by a flight to safe-haven assets amid rising global concern about the coronavirus.
That has propelled earnings and prompted Newmont, Barrick Gold and others to hike dividends and share repurchases, which shareholders have been demanding for years.
But miners say a dearth of new exploration poses an existential risk to the industry as falling ore grades push production costs higher.
"If you start moving out a number of years, it'll be a challenge" for supply to keep up with demand, AngloGold Ashanti CEO Kelvin Dushinsky said Tuesday on the sidelines of the BMO Global Metals and Mining Conference.
Despite that worry, AngloGold Ashanti earlier this month approved a dividend of $1.65 per share, up from 95 cents in 2018. Dushinsky said he expects gold prices to be supported as the number of new discoveries dwindles.
The trend is likely to continue and could force more consolidation in an industry that has already seen several multibillion-dollar deals in the past year, executives and industry analysts said.
"The price of gold where it is now gives the companies an opportunity to invest," said Kirkland Lake Gold Chief Executive Tony Makuch. "The problem is that you're at a period of time where a lot of the shareholders suffered from not seeing returns."
Paltry spending on exploration pushed the average life of a gold mine in 2018 to roughly 11 years, down from a global average of 16 years in 2012, according to consultancy Wood Mackenzie.
Barrick earlier this month hiked its dividend by 40%. Newmont has said it would raise its annual dividend 79% to $1.
At least one miner is trying to balance both priorities, for now.
Kirkland, which bought rival Detour Gold for C$4.3-billion, said it would double its annual dividend while boosting exploration spending.
Still, Barrick CEO Mark Bristow warned this week that the industry is headed for a precipice and said he believes global gold production has peaked.
"We, as an industry, haven't invested in our future," he said in an interview.