Quarterly Dividends Outlook
$42 M
Amerigo’s current cash balance is comfortably above the minimum cash target for normal operations ($25 M). Combined with a strong forward view on copper prices, it is high enough to secure quarterly dividends for the foreseeable future. A change in factors, such as the expected long-term price of copper or sustained growth in input costs, may lead management to change the current $25 M base cash target.
Our analysis indicates that long-term structural supply issues in the copper industry will support higher price levels. In that environment, Amerigo can remain a leader in returning capital and offering best-of-class total returns to investors. Our quarterly dividend is the foundation for the rest of our capital return policy.
Performance Dividends Outlook
Performance dividends allow Amerigo to return excess cash to shareholders flexibly. They will be paid in addition to regular quarterly dividends. Performance dividends will depend on Amerigo’s assessment of the global macro environment and the copper price outlook. In a stable global business environment, with sustained copper prices above $4 per pound, performance dividends are possible.
Copper prices have a strong correlation to increased inflationary expectations. This is another reason why Amerigo believes in higher future copper prices. Performance dividends are not only a flexible way to deploy excess cash from higher copper prices. A secondary benefit of a performance dividend is its unexpected nature. Because short sellers do not receive, but instead must pay, all declared dividends, the simple possibility of an unexpectedly declared performance dividend should help to minimize short selling of Amerigo shares.
Share Buybacks Outlook
In 2021 and 2022, Amerigo completed two share repurchase programs, a Substantial Issuer Bid (SIB) and a Normal Course Issuer Bid (NCIB), which reduced common shares outstanding by 10%.
An NCIB may be implemented for up to one year and limits the number of shares repurchased daily under the program. The timing of the purchases is determined by Amerigo. This allows the Company to take advantage of discounted valuations during periods of market weakness.
Amerigo’s current NCIB was launched on December 2, 2022. This program is the Company’s third in three years and allows Amerigo to repurchase up to 11.08 million common shares until December 1, 2023. Suppose a total of 11.08 million shares are repurchased for cancellation. This will represent a cumulative reduction of 28.95 million common shares since October 2021 (17.43% of the issued and outstanding common shares at the start of the current NCIB).
A SIB is used more infrequently but is a powerful way to quickly return capital to shareholders when the Company perceives its share price as undervalued. If large shareholders have met their investment objectives, a SIB is a valuable tool to remove large share volumes from the market while minimizing downward pressure on Amerigo’s share price.
Under NCIBs and SIBs, all shares purchased by Amerigo are cancelled, leaving fewer shares outstanding to receive future dividends.
Our Track Record
$18.6 M Dividends | $21.1 M Share Buybacks
Since starting the capital return strategy in October 2021, Amerigo has paid a cumulative dividend of Cdn$ 0.14 per share ($18.6 million) and used $21.1 million to purchase and cancel 17.87 million common shares. The Company initiated a second Normal Course Issuer Bid share buyback program in December 2022, and share repurchases are ongoing.
Reducing Share Count with Buybacks
A share buyback program is a valuable component of a multi-faceted capital return strategy. A share buyback program allows the Company to opportunistically take advantage of periods of share price weakness and reduce the number of shares available in the market. This lends positive support to the Company’s share price.
Over time, a sustained commitment to reducing the number of outstanding shares will have recognizable benefits to remaining shareholders. All else being equal, a fixed amount of capital being returned to fewer shares means more cash for those remaining shareholders.
