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Barrick’s and Newmont’s High Financial Leverage: Does It Matter?

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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.

Barrick's and Newmont’s High Financial Leverage: Does It Matter?

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Barrick has the highest financial leverage

Barrick Gold’s (ABX) financial leverage is among the highest in the industry. It has a high debt-to-asset ratio of 38% compared to its peers below:

  • Newmont Mining (NEM): 25%
  • Kinross Gold (KGC): 26%
  • Agnico Eagle Mines (AEM): 17%
  • Yamana Gold (AUY): 15%
  • Goldcorp (GG): 14%

Barrick’s debt-to-equity ratio shows a debt-to-equity mix in the company’s capital structure. It’s also the highest at 106%. 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. Investors are mainly concerned about the pressure that debt servicing is putting on these companies’ margins.

Unfolding of financial 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 (mergers and acquisitions) strategy.

Goldcorp and Newmont form 13.4% of the VanEck Vectors Gold Miners ETF (GDX). 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 at gold mining companies’ cash holdings and their near-term and long-term needs.

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