A Comparison of Key Intermediate Gold Mining Companies in 2015

(Continued from Prior Part)

Previously in this series, we analyzed the financial leverage of six intermediate mining companies—Agnico Eagle Mines (AEM), Anglogold Ashanti (AU), Gold Fields (GFI), Tahoe Resources (TAHO), Sibanye Gold (SBGL), and Eldorado Gold Corporation (EGO)—in order to weigh the importance of leverage for gold miners. Financial leverage only analyzes the long-term solvency (more than one year) of a company, whereas financial liquidity checks cash outflow and inflow in the short-term (less than one year) period.

If a company’s cash outflow is more than its cash inflow, it will be short of cash and might have to take drastic measures to improve the liquidity. Analysts use various ratios to judge the financial liquidity of a company. The most widely used ratio is a company’s current ratio, which shows its ability to pay current liabilities using current assets. Current ratio is calculated by current assets divided by current liability. A higher current ratio is better for a company.

Other measurements of financial liquidity ratios include quick ratio, inventory days, payable days, and receivable days. But current ratio is considered the most comprehensive measure for analyzing the liquidity profile of a company.

Below is a breakdown of the six gold mining companies we’ve been evaluating in this series and their current ratios in 2015:

• Eldorado Gold (EGO)—3.3x
• Agnico Eagle (AEM)—2.8x
• Anglogold (AU)—2.1x
• Gold Fields (GFI)—1.7x
• Tahoe Resources (TAHO)—1.6x
• Sibanye Gold (SBGL)—0.6x

Eldorado is the best-placed mining company in terms of short-term liquidity, whereas Sibanye Gold’s current ratio is the poorest-placed, as it is very low.

The SPDR Gold Shares (GLD) and the Market Vectors Gold Miners ETF (GDX) are two notable ETFs in gold industry. Investors can invest in these ETFs to get exposure to gold. Anglogold forms 4.80% of the GDX’s portfolio holdings.

In the next part of this series, we’ll look at the importance of free cash flow among mining companies in 2015.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - An Overview of Gold Miner Performance in 2015
• Part 2 - Evaluating Gold Production for Intermediate Gold Miners in 2Q15
• Part 3 - Why Growth in Gold Production Is Important for Gold Miners