While financial leverage helps assess a company’s long-term solvency, analyzing its short-term liquidity profile is also important.
One way to assess a company’s liquidity is to calculate its current ratio. The chart above shows the current ratios of five gold miners (RING) (GDX). A higher ratio means a company should be better able to take care of its short-term liabilities, and vice versa. Newmont Mining (NEM) and Kinross Gold (KGC) are doing the best among senior miners with ratios of 4.2x and 4.1x, respectively. Goldcorp (GG) and Yamana Gold (AUY), on the other hand, have the lowest current ratios of 0.9x and 1.1x, respectively.
But even the companies with lower ratios don’t seem to be in trouble as far as their liquidity profiles are concerned.
Barrick Gold (ABX) had a cash balance of ~$2.4 billion at the end of the first quarter. It also had a $4 billion credit facility, which remains fully undrawn. It also has less than $100 million in debt due before 2020. More than 75% of its outstanding debt doesn’t mature until 2032.
Newmont had total liquidity of $6 billion at the end of the first quarter. Its liquidity includes ~$3.1 billion in cash and cash equivalents. It also has one of the best credit ratings in the mining sector.
Kinross Gold had no debt maturities before 2021. It had a cash balance of $1 billion and $2.6 billion in total liquidity at the end of the first quarter.
At the end of the first quarter, Goldcorp had $3.1 billion in liquidity, excluding $186 million in cash and cash equivalents held at its associates. Its liquidity includes $200 million in cash and cash equivalents and short-term investments and $2.95 billion out of its $3 billion credit facility.