By Kevin Crowley
A surge in the price of bullion is proving the perfect antidote to gold miners’ record debt chalked up over the past decade.
The metal has climbed 26 percent in 2016, the best start to a year in four decades, giving producers more cash to repay loans or retire debt. The windfall is even bigger for mines in South Africa and Australia, where revenue in dollars is going a lot further because of weaker currencies used to pay workers and run operations.
AngloGold Ashanti Ltd. and Gold Fields Ltd., both based in Johannesburg, are buying back debt, and the yields on their bonds have halved since January. The surge in bullion this year is a bonanza for an industry that borrowed record amounts to expand output after prices reached all-time highs in 2011, only to endure reduced earnings and even losses as prices began a three-year slump.
“Increasing revenues combined with reducing production costs have widened Ebitda margins and lifted free cash-flow generation,” Douglas Rowlings, a Dubai-based analyst at Moody’s Investors Service, said by e-mail. “Both companies are taking advantage of the current operating environment to deliver on continued deleveraging.”
Fulfilling its role as a haven in times of economic turmoil, gold has attracted investors this year after the U.K. voted to leave the European Union, the Federal Reserve dialed back expectations for rate increases and a slowdown in China weighed on global growth.
The surge in gold has come as a welcome boost for the world’s biggest miners of the metal, who racked up record debt during bullion’s bull run to 2011 and struggled to pay it back once prices fell. AngloGold and Gold Fields have the further benefit of weak currencies in their biggest-producing regions, helping to lower costs. The South African rand and Australian dollar are down 22 percent and 9.5 percent respectively against the greenback over the past 18 months.