Australian gold miners are likely to lift dividends and launch share buybacks over the next few years as they generate stronger cash flows, Citi analysts say.
Gold prices are high due to geopolitical tensions, a softer US dollar and expectations that US interest rates will remain within a narrow range, with the precious metal currently trading around $US1,295 ($A1,813) per ounce.
Locally-listed gold miners are also benefiting from growth in spending in previous years and expansion through acquisitions.
This trend is expected to continue with more production and further deleveraging, Citi analysts said, who estimate that the local gold companies they cover - other than Newcrest Mining - are set to increase economic value added to eight per cent by 2019.
The resulting increase in cash flows could lead to cash balances across the group reaching as high as $4.6 billion by the end of 2020.
Historically, the industry has used available cash for capital spending and acquisitions, but capex is forecast to decrease in coming years and value accretive takeovers will also prove more difficult, the Citi analysts say.
"While mergers and acquisitions worked well in the past, we expect it to be less effective in future, due to increasing competition for a shrinking pool of known assets," they said in a report.
"We see the industry building some opportunistic cash but then increasingly returning capital to shareholders, and there is significant capacity to lift payouts."
They expect a number of companies to increase their dividends over the next 12 months.
Citi has picked Evolution Mining and smaller West Africa-focused miner Resolute Resources as their top picks, as both companies benefit from strong cash generation and earnings growth prospects.
It holds a "buy" rating on both stocks.
