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 has the highest financial leverage
While 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 debt-to-asset ratio of 36% compared to its peers below:
Barrick’s debt-to-equity ratio shows a debt-to-equity mix in the company’s capital structure. Newmont’s debt ranking has come down significantly. Its debt-to-equity ratio is high at 40% but lower than Kinross Gold’s ratio.
Unfolding of financial leverage
Poor acquisition decisions at the peak of the cycle have led to debt escalation for Barrick, Newmont, and Kinross. Goldcorp and Agnico-Eagle (AEM), on the other hand, have followed a prudent M&A (mergers and acquisitions) strategy.
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.