Barrick: The Worst Financial Leverage of Senior Gold Miners?



Leverage ratios

Investors in the gold mining industry need to know a company’s debt levels. 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.

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Barrick has the highest financial leverage

Barrick Gold’s (ABX) financial leverage is among the highest in the industry. Barrick has a high debt-to-assets ratio of 39% compared to Newmont Mining’s (NEM) 25%, Kinross Gold’s (KGC) 23%, Agnico Eagle Mines’ (AEM) 18%, Yamana Gold’s (AUY) 15%, and Goldcorp’s (GG) 10%.

Barrick’s debt-to-equity ratio shows a debt-to-equity mix in the company’s capital structure. It’s also the highest at 101%. Newmont’s debt ranking is also high in the overall gold sector. Its debt-to-equity ratio is high, at 44%, compared to other senior and intermediate gold miners, except Barrick. Newmont and Barrick’s number-one priority is debt reduction. Investors are mainly concerned about the pressure debt servicing is putting on these companies’ margins.

Impact of M&As on leverage

Poor acquisition decisions at the peak of the cycle have led to debt escalation among Barrick, Newmont, and Kinross. Goldcorp and Agnico, on the other hand, have followed a prudent M&A strategy.

Goldcorp and Newmont form 13.80% of the VanEck Vectors Gold Miners Index (GDX) while the SPDR Gold Trust (GLD) is a good way to gain exposure to spot gold prices.

The companies with the strongest balance sheets can weather weakness longer than their highly leveraged peers.

In the next part, we’ll look deeper into gold mining companies’ cash holdings and their near- and long-term needs to see if they can survive the current volatile and weak commodity price environment.


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