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Analyzing Gold Stocks’ Health after 3Q16

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Strengthening balance sheets

While gold prices have improved in 2016 compared to the last three years, 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 3Q16, it had a cash balance of $627 million. It also has a revolving credit facility of ~$168 million as of the end of 3Q16, giving it total liquidity of $795 million. IAMGOLD’s long-term debt also fell 23% to $489 million in 3Q16, compared to $643 million at the end of 2Q16. It repaid debt amounting to $154 million during the quarter. IAG has plenty of cash to invest organically in order to seek growth opportunities.

Strong balance sheets

Agnico-Eagle Mines (AEM) further strengthened its balance sheet in 3Q16. The cash, cash equivalents, and short-term investments totaled $627.4 million. It also reduced its net debt by approximately $154 million, to $587.9 million, at September 30, 2016. On October 26, 2016, the company amended its $1.2 billion credit facility to extend the maturity date from June 22, 2020, to June 22, 2021.

At the end of 3Q16, Eldorado Gold (EGO) had $652 million in total liquidity, including $412 million in cash, cash equivalents, and term deposits, and $240 million in undrawn lines of credit. The company expects to close its recent divestment transactions in November 2016. Including these transactions, Eldorado should have ~$1 billion in cash and cash equivalents by the year’s end. This comfortable liquidity position should also support Eldorado’s future growth projects.

New Gold (NGD) had $151 million in cash and $400 million in an undrawn credit facility available at the end *of 3Q16. The company’s investment policy is to invest its surplus funds in permitted investments consisting of treasury bills, bonds, notes, and other debt instruments.

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

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