Re: Charts & Comments - The Case For Dividends
in response to
by
posted on
Nov 13, 2011 09:31AM
Saskatchewan's SECRET Gold Mining Development.
The Argument For Dividends
The argument in favour of paying dividends is simple.
The company will be able to meet with its growth plans by spending a certain amount of money each quarter over the next as the gold price rises, and production rates rise. Over and above this amount is overwhelming free cash flow.
During the depression era, gold mines paid out the bulk of their earnings in dividends because they could rely on a fixed gold price, and a devalued currency. Their operations and development costs were ~$8- $12/oz. and the rest was paid out.
Two things GBN.V has that depression era gold mines didn't have to shoulder were a huge developmental deficit, and a variable gold price. But this shouldn't be seen as a burden or a restriction.
That GBN.V does not have mines that were in production for a period of decades is a huge bonus, though its generally perceived as a negative.
Secondly, since the company is paying for its forseeable costs in the prior quarter, they can plan in the same way to pay a dividend, by accumulating cash on hand in the prior quarter to ensure a payout in the following quarter. This would overcome the handicap of a variable and volatile gold price.
Divdends are a rare bird amongst small mining companies, but history shows that mines paid out dividends almost at the outset. The general argument for paying out dividends is that depending on dividends is a better idea over share price appreciation, because share prices have lagged inflation since yr. 2000.
In the following interview, David Rosenberg outlines his economic outlook and the case for dividends:
http://www.youtube.com/watch?v=4LZx8WUt3Qw
-F6