Highly leveraged miners

Newmont Mining (NEM) and Barrick Gold (ABX) are among the miners that mistimed their acquisitions to just before precious metal prices (GLD)(SLV) spiraled down. These acquisitions were mostly funded by debt, and large portions were subsequently written off. This led to the accumulation of excessive debt without any proportionate increase of earnings capacity. These companies are currently focusing on paying off their debts.

Comparing the Debt Metrics of ABX and NEM

However, miners such as Goldcorp (GG) and Agnico Eagle Mines (AEM) resisted paying high prices for assets at or near the peak of the cycle.

Focus on reducing financial leverage

Newmont Mining has reduced its net debt by 83.0% since 2013. Newmont Mining’s net debt decreased to $0.8 billion at the end of 2017, compared to $1.9 billion at the end of 2016.

NEM’s net-debt-to-adjusted EBITDA[1. earnings before interest, tax, depreciation, and amortization] was 0.3x at the end of 4Q17, compared with 0.7x at the end of 1Q17 and 1.3x at the end of 2015. This trend is due to the improvement in EBITDA as well as the reduction in net debt.

Barrick Gold has reduced its net debt by 44.0% in the last two years to $4.1 billion at the end of 2017. In 2017, Barrick Gold reduced its total debt by $1.51 billion (or 19%), which exceeded its targeted reduction of $1.45 billion. The company is aiming to reduce its debt to $5.0 billion by the end of 2018 from its current level of $6.4 billion.

Focus on liquidity

At the end of 2017, Barrick Gold had a cash balance of ~$2.2 billion. It also had an ~$4.0 billion credit facility, which remains fully undrawn. Moreover, it has less than $100.0 million in debt due before 2020.

More than 75.0% of Barrick Gold’s outstanding debt doesn’t mature until 2032, which gives the company ample flexibility to advance its project pipeline without worrying about volatility in gold prices (GLD).

Newmont Mining had total liquidity of $6.2 billion at the end of 4Q17, compared to $5.9 billion at the end of 3Q17. Its liquidity includes ~$3.3 billion in cash and cash equivalents, and it has one of the best credit ratings in the mining sector.

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