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Which Gold Miners Look Attractive after 1Q17 Earnings?

PART:
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Part 6
Which Gold Miners Look Attractive after 1Q17 Earnings? PART 6 OF 14

Senior Gold Miners’ Financial Leverages after 1Q17 Results

Leverage ratios

Investors in the gold mining industry need to know a company’s debt levels, as high debt can strain a company’s credit rating. It’s important to note that during an industry downturn, companies with higher leverage usually underperform. If gold prices recover, companies with higher leverage ratios can generally outperform those with lower leverage ratios.

Senior Gold Miners’ Financial Leverages after 1Q17 Results

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Barrick Gold has the highest financial leverage

Although Barrick Gold (ABX) has reduced its debt meaningfully over the last few years, its financial leverage level is still one of the highest in the industry. It has a high DE (debt-to-equity) ratio of 90.0% compared to the following ratios for its peers:

  • Newmont Mining (NEM): 43.0%
  • Kinross Gold (KGC): 40.0%
  • Yamana Gold (AUY): 40.0%
  • Goldcorp (GG): 20.8%

Barrick Gold’s DE ratio shows a DE mix in the company’s capital structure. Newmont Mining’s debt ranking has fallen significantly.

Financial indebtedness

While miners’ debt levels started creeping up after they made some poor acquisition decisions at the peak of the cycle, those companies have been focusing on reducing financial leverage for the past two to three years. That has led to a significant reduction in debt, especially for Barrick Gold and Newmont Mining.

Goldcorp and Newmont Mining form 13.4% of the VanEck Vectors Gold Miners ETF (GDX). The SPDR Gold Shares ETF (GLD) is another good way to gain exposure to spot gold prices.

Remember, companies with the strongest balance sheets can usually weather weakness longer than their highly leveraged peers. In the next part, we’ll look at gold mining companies’ cash holdings and their near-term and long-term needs.

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