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Cash-rich Newmont Mining mulls boosting dividend as peers pursue debt reduction

A truck waits for ore at Newmont Mining Corp's copper and gold mine on Indonesia's Sumbawa island, in this file picture taken September 21, 2012.

STAFF/REUTERS

With a plump $3.1-billion (U.S.) pile of cash, Newmont Mining Corp. is mulling a sweeter dividend to attract a broader shareholder base, a move that makes it an outlier in the still recovering gold sector.

Although miners are no longer crippled by expansion-fuelled debt loads, the priority for their cash is building and expanding mines to replace depleting gold reserves, and further reducing debt.

Dividend increases are not on their immediate horizon, making Newmont, which has said it was considering doing so, stand out.

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Like other producers, Newmont is also investing in expansion projects, but with the fattest purse among gold producers and no debt due until 2019, the Colorado-based miner may have excess cash to return to shareholders.

Newmont, the world's second-biggest gold producer, has cut net debt by more than 70 per cent since 2013 to $1.5-billion, and will mull dividend payout options at its October board meeting.

"One of the things we'll be looking at is what's an appropriate level of dividend that might attract new investors," chief executive Gary Goldberg told Reuters.

Newmont is nipping at the heels of Barrick Gold Corp. for the title of world's largest gold miner, with plans to produce between 5 million to 5.4 million ounces of gold this year, against Barrick's forecast of 5.3 million to 5.6 million ounce output.

The two miners are also wrestling for top valuation, with Newmont's market capitalization of $19.3-billion just behind Barrick's $19.4-billion.

Among Newmont's potential options to boost its dividend is issuing a one-time special payment, said Chris Mancini, an analyst at Gabelli Gold Fund.

The company could also boost its gold price-linked dividend again, as it did last year, analysts said.

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"The market does want them to reinvest in projects which have high rates of return and relatively low risk," said Mancini.

"To the degree that there is excess cash on their balance sheet, the market would like to see that returned to them, in the form of a dividend."

At a $1,250 per ounce gold price, Newmont would pay 30 cents a share for its 2017 dividend, a yield of about 0.8 per cent, TD Securities analyst Greg Barnes said in a note to clients.

That is broadly in line with current industry yields, but an increased payout could potentially put Newmont ahead of its peers.

For now, richer dividends are not compelling for producers including Barrick, Kinross Gold Corp., Goldcorp Inc. and Agnico Eagle Mines Ltd., which are focused on reducing debt or investing in projects.

But as gold miners gain firmer footing, there is potential to mirror global diversified miners, which are hiking dividends as commodity prices and profits surge, Clarksons Platou global mining analyst Jeremy Sussman said.

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Rio Tinto, the world's second-largest miner, last week promised a record-setting $2-billion interim dividend, for example.

"If we were to see this on the gold side from one of the majors, especially in a meaningful way, I think the others would probably feel some pressure to follow suit, because at this stage, the vast majority of balance sheets are in very good shape," Sussman said.

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