"With gold’s historic selloff, most producers will be faced with cash shortfalls in the 2013-2016 period,’’ says Canaccord Precious Metals analyst Steven Butler in a new report.
This may necessitate debt refinancing, drawdowns of unused credit facilities, project deferrals and/or potential dividend cuts.
The warning is contained in a report titled “Balance Sheet Analysis: Who Holds Up at Current Low Spot Prices.”
In it, Butler said all-in sustaining costs for the sector are approaching US$1,100 to $1,200 an ounce and the “breakeven” gold price for new production would be closer to $1,400 to $1,500.
Under the spot price scenario, Butler highlights Barrick Gold Corp. (TSX: T.ABX, Stock Forum) (NYSE: ABX, Stock Forum), saying the world’s leading producer faces a $4.3 billion shortfall in the second quarter of 2015, which would necessitate debt financing, tapping $3 billion of unused credit capacity and/or reducing the current annual dividend ($800 million); Kinross Gold Corp. (TSX: T.K, Stock Forum) (NYSE: KGC, Stock Forum) with a $1 billion shortfall by Q2/16, which would require using a credit facility to repay a $1 billion term loan due August 2015 and deferring capex at Tasiast; Agnico-Eagle Mines Ltd. (TSX: T.AEM, Stock Forum) (NYSE: AEM, Stock Forum) with a $780 million shortfall by Q4/16, which would necessitate drawing on available credit ($1.17 billion) and/or deferring the Meliadine project or Kittila expansion or reducing the current annual dividend ($150 million); and IAMGOLD Corp. (TSX: T.IMG, Stock Forum), with a $430 million shortfall by Q4/16, which would necessitate deferring the Niobec block-cave expansion and/or reducing the current annual dividend ($95 million).
On the positive side, Butler says companies that are more defensive due to lower NAV sensitivity and/or better balance sheet positioning include:
Goldcorp Inc. (TSX: T.G, Stock Forum) (NYSE: GG, Stock Forum), Eldorado Gold Corp. (TSX: T.ELD, Stock Forum), Yamana Gold Inc. (TSX: T.YRI, Stock Forum), AuRico Gold Inc. (TSX: T.AUQ, Stock Forum), B2Gold Corp (TSX: T.BTO, Stock Forum), Nevsun Resources Ltd. (TSX: T.NSU, Stock Forum), New Gold Inc. (TSX: T.NGD, Stock Forum), Primero Mining Corp. (TSX: T.P, Stock Forum) and Pan American Silver Corp. (TSX: T.PAA, Stock Forum) (NASDAQ: PAAS, Stock Forum).