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Should You Worry about Gold Miners’ Financial Health?

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Strengthening balance sheets

While gold prices have remained buoyant since the start of 2016, gold miners are leaving no stone unturned in an effort to prune their balance sheets wherever possible. Gold miners’ (GDX) (GDXJ) debts ballooned after 2011 due to expensive acquisitions at the peak of the cycle and consequent write-downs. Investors grew wary of companies with too much financial leverage.

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Cash deployment is the key

Iamgold (IAG) has a strong cash flow and balance sheet position. At the end of 2Q16, it had a cash balance of $626 million. It also had a revolving credit facility of ~$140 million at the end of 2Q16, which equals total liquidity of $768 million.

Iamgold’s debt fell to $643 million in 2Q16 compared to $716.2 million at the end of 4Q15. It repaid $70 million in debt during the half-year. As liquidity remains abundant, cash deployment could lead to unlocking value for the company. For more information on this topic, please read How Does IAMGOLD Plans to Deploy Cash as Liquidity Remains Abundant?

Strong balance sheets

Agnico Eagle Mines (AEM) further enhanced its investment grade balance sheet in 2Q16. The company repaid the outstanding balance of $210 million under its credit facility. It also repaid 20 million Canadian dollars under the Canadian Malartic General Partnership’s loan facility. AEM reduced its net debt by approximately $181 million to $742 million. This is the seventh consecutive quarter that the company has reduced its net debt.

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At the end of 2Q16, Eldorado Gold (EGO) had $203 million in cash, cash equivalents, and term deposits and $220 million in unused credit. After the close of the transaction of sale of Chinese assets, which is expected in 4Q16, Eldorado Gold should be in a net cash position. This should improve its leverage position substantially. This comfortable liquidity position should also support Eldorado’s future growth projects.

New Gold (NGD) had $220 million in cash and $179 million in an undrawn credit facility available at the end of 2Q16. The company also realized $75 million as the remaining proceeds from the Rainy River stream. NGD noted that its liquidity position and cash flows from operations are sufficient to support the normal operating requirements as well as the development capital expenditure at Rainy River.

Next, let’s look at gold miners’ liquidity profiles and what we can learn from them.

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