The metals and mining industry is capital-intensive by nature. Companies must borrow money to invest in plants and new mines. As a result, it’s important for investors in mining companies to know how these companies manage their leverage ratios.
It is important to know the companies’ debt ratios when market conditions are as challenging as they are under current market conditions.
Nucor better placed
- While other steel companies such as U.S. Steel Corporation (X), ArcelorMittal (MT), and AK Steel (AKS) are grappling with surging debt levels, Nucor (NUE) is comfortably placed on this front. Nucor has been able to raise its dividends (VYM) amid the challenging steel market conditions.
- Net debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) is a measure of a company’s leverage. Nucor had a healthy ratio of 1.26 at the end of 3Q15. Nucor’s net debt to EBITDA has come down in the last couple of quarters, as can be seen in the graph above.
- Nucor had a debt-to-capital ratio of 36% as of September 30, 2015. The company closed the quarter with cash and marketable securities of ~$2 billion. Nucor also has an unsecured revolving credit facility of $1.5 billion.
- While responding to a question on how Nucor plans to deploy its cash, John Ferriola, Nucor CEO, noted, “Our first priority will always be aggressive growth, profitable growth in our company. And that can be done several ways.”
- Ferriola also said that Nucor has been making both organic and inorganic investments over the years.
- On possible acquisitions, Ferriola added, “So yes. We’re looking at that. It’s a way to not only grow our volumes but to grow our customer base and grow the breadth of our products. And that’s something that’s very important as we look potential targets out there.”
In the next part, we’ll cover the other key takeaways from Nucor’s 3Q15 earnings call.