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Health in Gold: Which Miners Are in Tip-Top Shape

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Strengthening balance sheets

While gold prices gained in 2016 after a hiatus of three years, 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.

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Some significant improvements

In 2016, Newmont Mining (NEM) repaid $1.3 billion in debt, which brings its net debt at the end of 2016 to $1.9 billion, as compared to $3.5 billion at the end of 2015. NEM has reduced its net debt by two-thirds in the past three years, which has also helped the company improve its financial metrics significantly.

Barrick Gold (ABX) achieved debt reduction of $2.0 billion in 2016, which is in line with its targeted debt reduction plan for the year. It intends to reduce its total debt by $2.9 billion by the end of 2018, and it’s targeting half of that reduction in 2017.

Notably, Barrick has achieved a debt reduction of more than $5.0 billion since early 2015. Even after this debt reduction, the company remains highly leveraged compared to its peers. However, that should be less of a concern to investors in the environment of rising gold prices.

Strong financial position

Kinross Gold (KGC) repaid $250.0 million in senior notes in September 2016. It has no maturities until 2020. That brings the total debt repaid by the company in the past four years to $1.0 billion.

The strength of Kinross Gold’s balance sheet gives the company a lot of flexibility to move forward with its growth projects. While highlighting its strong liquidity and balance sheet position, its CFO (chief financial officer) Tony Giardini said during its 4Q16 earnings call that its balance sheet provides “the financial flexibility to invest in our strategic priorities and development program.”

Goldcorp (GG) has a strong balance sheet compared to peers. Its net debt remained almost constant at $2.3 billion at the end of fiscal 3Q16, as compared to 2Q16. During its investor day, Goldcorp’s CEO, David Garofalo, mentioned that the balance sheet is fundamental and that the company is trying to deleverage it even further, point out that the company is in “harvest mode” right now.

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

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