In the gold mining space, it’s important for investors to keep an eye on miners’ DE (debt-to-equity) ratio. This ratio shows the mix of debt and equity in a company’s capital structure. Usually, companies try to maintain an optimal level of this ratio to reduce the cost of capital and minimize risk.
Among gold miners (GDX), Newmont Mining (NEM) and Barrick Gold (GOLD) had the highest financial leverage levels. They made acquisitions at the peak of the commodity cycle, which led to a build-up of debt. The majority of these assets were eventually written off due to low precious metal prices (GLD) (SLV) and poor economics. Since then, these companies have come a long way as far as their financial leverages are concerned.
Barrick Gold has been focusing on reducing its debt for the last few years and has paid down a large portion of it. During Q1 2019, Barrick had a comfortable liquidity position and a cash balance of ~$2.15 billion. Its net debt fell 12% sequentially to $3.65 billion at the end of Q1.
It had a DE ratio of 37.2% at the end of Q1. At the end of Q4 2018, its DE ratio was 75.5%. Barrick’s financial leverage has improved significantly since its merger with Randgold Resources.
Newmont Mining’s (NEM) financial leverage is more or less the same at the end of Q1 as compared to Q4 at 41.6%. For Kinross Gold (KGC), the leverage deteriorated marginally from 38.5% to 41.9% at the end of Q1. Similar is the case with Agnico Eagle Mines (AEM), which had a DE of 39.5% at the end of the first quarter as compared to 37.9% at the end of Q4.