Which Gold Miners Are in Perfect Financial Health after 1Q17?
Strengthening balance sheets
After years of accumulating debt during the up cycle, gold miners (GDX) (GDXJ) are leaving no stone unturned to trim their balance sheets wherever possible. Investors have grown wary of companies with too much financial leverage.
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Barrick Gold (ABX) and Newmont Mining (NEM), two of the largest gold mining companies by market capitalization, were the first miners to be punished by investors due to their high financial leverages.
Significant debt improvements
Last year, Newmont Mining (NEM) repaid $1.3 billion in debt. That brought its net debt at the end of 2016 to $1.9 billion, a huge reduction of 46.0% YoY (year-over-year). The company maintained its pace of debt reduction in 1Q17 as well, paying down ~$200.0 million of debt in 1Q17 to end the quarter with a net debt of $1.7 billion. That helped the company significantly improve its financial metrics.
Barrick achieved debt reduction of $2.0 billion in 2016. It intends to reduce its net debt from $7.9 billion at the beginning of 2017 to $5.0 billion by the end of 2018. The company is targeting $2.9 billion, or half of the total reduction, for 2017. In 1Q17, the company reduced its total debt by $178.0 million, mainly due to maturities during the quarter and advanced payments toward its project finance loan.
Strong financial position
Kinross Gold (KGC) repaid $250.0 million in senior notes in September 2016. It has no maturities until 2020. That brings the total debt repaid by the company in the past four years to $1.0 billion.
At the end of 1Q17, Kinross Gold (KGC) had $819.0 million in cash and cash equivalents and $2.3 billion in total liquidity. The strength of Kinross Gold’s balance sheet gives the company a lot of flexibility to move forward with its growth projects. Its liquidity and expected cash flow should be sufficient to fund its operations, capital expenditure, and exploration expenditure.
Goldcorp (GG) has a strong balance sheet compared to its peers. At its investor day, David Garofalo, Goldcorp’s CE, said the balance sheet is fundamental and that the company is trying to deleverage it even further. He pointed out that the company is in “harvest mode” right now.
Next, we’ll look at gold miners’ liquidity profiles and see what we can learn from them.