Where do the OceanaGold PH dividends come from?

I got this question a few times over the past month. As we know, the OceanaGold PH [OGP 14.10 ?1.9%; 292% avgVol] dividend policy is to distribute at least 90% of “free cash flow” through dividends that are paid either quarterly or semi-annually. So far, OGP has delivered quarterly dividends, but like with REITs (they only have to distribute their dividends based on annual income; quarterly payments are just at the board’s discretion), that’s more of a custom than a requirement for OGP. Where things got confusing for people was the Q3 dividend announcement, where OGP declared a $0.0138/share dividend to shareholders of record as of November 20. The dividend disclosure listed “unrestricted retained earnings as of 31 December 2023” as the source of the dividend payment, but that went against the general understanding people had developed that dividends would be sourced from that period’s (Q3) free cash flow. 

I asked OGP directly for their response. I asked them to state plainly how OGP intends to pay dividends, and from what period the quarterly dividend will be drawn. Here is what they said:

“The Company has a Board-approved dividend policy which targets the payment of a dividend equivalent to at least 90% of the company’s Free Cash Flow generated during the period with such dividends to be paid either quarterly or semi-annually at the discretion of the Board based on the previous year’s unrestricted retained earnings. While we expect to pay quarterly dividends, dividend payments for future periods will depend on a number of factors including our operational performance, financial performance, cash flow and market conditions. As for the Q3 dividend announced in November, to be paid in December, we can confirm that it is 90% of the free cash flow generated for the third quarter. This will be consistent in the future, with the Board making a determination on a quarterly basis informed by the reported quarterly results.”

MB BOTTOM-LINE:  There you have it. So while the technical source of the Q3 dividend payment is FY23 unrestricted retained earnings, OGP bases how much it will distribute through this dividend on its (FCF) calculation for Q3. I don’t love how much time OGP spends reminding us of how much discretion the board has in terms of maintaining a consistent quarterly dividend. This could just be the natural lawyerly compulsion to disclaim every possible outcome to prevent undue expectations from forming, but it comes off (to me) as unnecessary uncertainty. The whole point of owning OGP is to speculate on the price of gold and receive dividends, and I think the company can probably do more to recognize that. While OGP isn’t legally required to hold our hands, I think that it could do a lot more to simplify “the bargain” of owning OGP. Here’s what I’d like to see from OGP going forward: (1) include OGP’s FCF calculation for the current quarter in the quarterly dividend declaration, (2) talk about quarterly FCF (not 9M FCF) in its management’s discussion section, and (3) commit to quarterly dividends as a matter of course with deviations only for emergency circumstances. I’m a huge fan of OGP, but based on the questions I’m getting from the investing public, their communication could improve by addressing some of these low-hanging fruit suggestions. Thanks for responding, OGP!

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