S&P warns that if gold prices average about $1,100/oz in 2015, several N.A. gold producers may have their credit ratings downgraded.
RENO (MINEWEB) – While most Standard & Poor’s-rated North American gold producers are anticipated to maintain relatively stable credit profiles at $1,200/oz gold through 2015; if gold prices settle modestly below $1,200/oz, Allied Nevada Gold, Barrick Gold, Iamgold, Kinross Gold and Newmont Gold “are particularly vulnerable”.
“Specifically, we estimate that thse companies would breach the adjusted debt-to-EBITDA ratio, funds from operations (FFO)-to-debt ratio, or liquidity thresholds previously highlighted in the downside scenarios in our most recent research reports on each issuer,” said S&P in the new RatingsDirect report entitled: Will Falling Prices Tarnish North American Gold Producers Credit Quality?
Currently, S&P rates both Barrick and Newmont at ‘BBB’ with a “Negative” outlook, Kinross at a ‘BBB-’ with a “Stable” outlook, Iamgold with a ‘BB+’ with a “Watch Negative” outlook, and Allied Nevada at a ‘CCC+’ with a “Negative” outlook.
In an interview with Mineweb Friday, S&P primary credit analyst Jarrett Bilous observed, “We have a relatively stable gold price at $1,200 through 2015-16, and that incorporates our expectation for relatively modest US inflation below 2% through 2016. But we also believe that gold prices will remain particularly susceptible to shifts toward higher US interest rate expectations and a stronger US dollar.”
He added: “We’re not forecasting a gold price below $1,200, but there’s certainly the potential that prices could weaken given that, at $1,200 per ounce, the price of gold is close to 50% higher than it was in 2008 when the US started cutting interest rates to support the US financial system. We are expecting at that price, gold will remain highly volatile.
“It is certainly possible that gold will drop below $1,100,” Bilous cautioned. “But below that level there’s a lot of capacity in the industry that would not be profitable and would be generating negative free cash flow. So it’s questionable how long certain mines would remain open if prices were to remain consistently below that level.
“The average among investment-grade rated peers is slightly below a $1,000/oz. But that’s sustaining level of capex. That doesn’t include any capital that companies may allocate to growth initiatives and it also doesn’t include any general or administrative expenses or any budgets that they may use towards exploration for example,” Bilous explained.
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