How Do Gold Miners’ Leverage Ratios Look?

Leverage ratios

In the gold mining space, it’s important for investors to look at the companies’ DE (debt-to-equity) ratio. A company’s DE ratio shows the DE mix in its capital structure. Usually, companies try to maintain an optimal level of this ratio to reduce the cost of capital and minimize risk. However, debt levels can create problems for companies, especially when the commodity markets aren’t doing well.

How Do Gold Miners’ Leverage Ratios Look?

Financial leverage

Among gold miners (GDX), Barrick Gold (GOLD) and Newmont Mining (NEM) have higher financial leverage profiles. They made acquisitions at the peak of the commodity cycle, which led to a build-up of debt without corresponding assets. Most of these assets were eventually written off due to poor economics and low precious metal prices (GLD) (SLV). Since then, these companies have come a long way as far as their financial leverages are concerned. A large part of the debt has been repaid through non-core asset sales, and the rest has been done through cash flows.

Barrick Gold has a high DE ratio of 75.6% compared to the following ratios of its peers:

  • Newmont Mining (NEM): 40.6%
  • Yamana Gold (AUY): 45.6%
  • Kinross Gold (KGC): 38.5%
  • Goldcorp (GG): 31.4%

A company’s DE ratio shows the DE mix in its capital structure.

Financial indebtedness

Most of these miners have paid off the majority of their debts. Barrick has reduced its debt more than 57% in the last four years from $13.4 billion at the end of 2014 to $5.7 billion at the end of 2018. Newmont Mining has reduced its net debt by 83% since 2013.

While the gold mining sector is in deleveraging mode, the same can’t be said for the broader markets. The financial leverage of the S&P 500 Index (SPY) (IVV) has risen over the years.