Three of four top NA gold miners burdened by debt and rising costs – S&P – by Dorothy Kosich (Mineweb.com- December 19, 2012)

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North American gold miner Goldcorp “has stood alone among gold miners” in increasing production and earnings without adding large amounts of debt, says Standard & Poor’s analysts.

RENO (MINEWEB) – In spite of favorable gold prices and strong operating cash flow, Standard & Poor’s analysts have been unhappy with gold producers’ rising costs and higher debt burdens.

In an analysis published Tuesday, S&P Credit Analysts Donald Marleau and George Economou observed, “Rating pressure is emerging in the gold mining industry as companies struggle to boost returns, despite the long-standing run of gold prices.”

“In fact, some of these companies are taking on unprecedented levels of debt to fund large, risky investments or acquisitions to increase—or even merely sustain—gold output,” they said.

Of the four North American gold companies reviewed by S&P, Goldcorp’s “track record of growing output, lower costs, and stable debt compares favorably with its larger, more diverse ‘BBB+’ rated peers Barrick and Newmont,” said S&P, “Moreover, the company’s ‘modest’ financial risk profile acts as a considerable buffer against potential shocks, such as unstable prices and costs or sudden spikes in capital spending needs.”

In their analysis, Marleau and Economou observed, “Since its inaugural bond issue in 2009, Goldcorp has stood alone among gold miners in increasing output and earnings without adding meaningful amounts of debt.”

“All things being equal, we wouldn’t expect the company to face a downgrade unless gold prices were to drop about 50%,” S&P advised.

Meanwhile Marleau and Economou said they believed Barrick’s rating “is most at risk among its peers.”

“This company holds the peer group’s largest debt load and highest leverage, and consequently has the least cushion for deteriorating credit measures at the current rating,” they said. “We estimate that Barrick could face another downgrade if gold prices were to decline about 25%, but the company also has the industry’s highest exposure to overruns in capital expenditures, given its large expansion projects.”

The credit ratings on Newmont and Kinross also face similar stresses, S&P advised.

“We believe the respective ‘BBB+” and ‘BBB-‘ ratings would be under pressure if gold prices declined about 35% over our 24-month rating horizon with no meaningful operating or capital cost adjustment,” said the analysts.

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