Strengthening balance sheets
While gold prices have remained buoyant since the start of the year, gold miners are leaving no stone unturned to trim 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.
Barrick Gold (ABX) and Newmont Mining (NEM), two of the largest gold mining companies by market capitalization, were the first miners to be punished by investors due to their high financial leverage. In this part, we’ll see how far senior gold miners have come on their path to strong balance sheets.
Significant improvement: Barrick Gold and Newmont Mining
Newmont Mining has already repaid $1.1 billion of its debt in 2016. Its recent debt tender of $500 million brings the total debt repayment to $1.6 billion, which is well ahead of its target to reduce its debt by $1.3 billion by 2018.
After achieving its target debt reduction of $3 billion in 2015, Barrick Gold achieved another $1.4 billion reduction in the first nine months of 2016. This is close to 70.0% of its target of $2.0 billion for 2016. The company noted that it’s on track to achieve its targeted debt reduction in 2016. It plans to achieve this target through existing cash balances and fourth-quarter operating cash flow.
Strong financial position
During the 3Q16, Kinross Gold (KGC) repaid $250.0 million of senior notes. With this, the company doesn’t have any debt maturity before 2020. Kinross Gold’s balance sheet strength gives the company a lot of flexibility to move ahead with its growth projects.
In its 3Q16 earnings call, Kinross Gold’s CEO, Paul Rollinson, stated that with this level of liquidity, the company is “well positioned to advance a number of exciting organic growth opportunities including the Tasiast expansion, Bald Mountain and other projects that meet our investment hurdles and strategic priorities.”
Yamana Gold (AUY) is committed to reducing its net debt by $300 million by the end of 2017. The company is targeting a net debt-to-EBITDA[1. earnings before interest, tax, depreciation, and amortization] ratio below 1.5x.
Yamana Gold recently announced the spin-off of its Brio Gold unit. The proceeds from the spin-off of Brio Gold should enable Yamana to reduce its net debt. Apart from this, Yamana raised $178 million through the completion of its Mercedes mine sale and the monetization of its Sandstorm (SAND) warrant holdings.
Next, let’s look at gold miners’ liquidity profiles and what we can learn from them.