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Volatile Gold prices credit negative for North American miners says S&P

FXStreet (Mumbai) - The rating agency Standard and Poor say that Gold prices settling below USD 1200/Oz may hurt the ratings profile of North American Gold producers like Allied Nevada Gold, Barrick Gold, Iamgold, Kinross Gold and Newmont Gold.

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. However, those companies may breach the adjusted debt-to-EBITDA ratio or liquidity thresholds highlighted in the downside scenarios in the most recent reports of S&P. According to primary credit analyst Jarrett Bilous, “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. We are expecting at that price, gold will remain highly volatile.”

Most gold mining companies covered by S&P have responded to substantially weaker gold prices by drastically reducing capex that they previously earmarked for debt-funded expansion, S&P said. Nevertheless, S&P suggests: “There are limits as to how low capital expenditures can fall before long-term credit quality begin to suffer.”

The S&P’s new report titled, “Will Falling Prices Tarnish North American Gold Producers Credit Quality?” comes at a time when the Gold prices are trading near four year lows. Gold fell below USD 1183/Oz levels on Friday after rising equity markets reduced the appeal of the yellow metal. The threat of interest rate hike in the US, coupled with the deflationary effect of falling energy prices has reduced the hedge demand for Gold.

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