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Is Newmont’s Financial Leverage Expected to Fall Further?

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Balance sheet under control

According to management, Newmont Mining (NEM) has been very successful at transforming its balance sheet in the last two to three years. Along with Barrick Gold (ABX), it was one of the most highly-leveraged senior gold miners. While Barrick had debt reduction as its number one priority too, Newmont has been more successful in getting its balance sheet under control. Since 2013, Newmont’s net debt was reduced by 35% to reach $3.4 billion at the end of 3Q15. Until 3Q15, the company had repaid $330 million of debt out of a target of $750 million for 2015.

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Improving financial leverage

Unlike many of its peers, Newmont has been able to fund its projects from its operating cash flow at the gold price level of $1,100 per ounce. Its current net debt to EBITDA (earnings before interest, tax, depreciation, and amortization) ratio improved to 1.1x from 1.9x at the end of 3Q14. Newmont is aiming to be close to 1x going forward, at $1,200 per ounce gold price level.

Newmont also said that it was committed to maintaining its investment grade rating.

Maturity profile

Newmont has a comfortable maturity profile, with no major debt maturities due until 2019. Its liquidity profile also remains comfortable. As of September 30, 2015, Newmont had a total liquidity of $6.4 billion, including $3 billion in cash and cash equivalents, $0.4 billion in marketable securities, and $3 billion in revolver capacity.

By comparison, Newmont’s peer Goldcorp (GG) still has lower financial leverage compared to senior gold peers (GDX). Also, Kinross Gold’s (KGC) balance sheet is in good shape.

Investing in gold-backed ETFs like the SPDR S&P Gold Trust (GLD) is another way of gaining exposure to spot prices of gold without investing directly in the stock of mining companies. The Sprott Gold Miners ETF (SGDM) also invests in US-listed gold miners.

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