Gold, as measured by the SPDR Gold Trust (ETF) (NYSEMKT:GLD) is down a remarkable 30% from its 52-week high. However, that performance pales in comparison to the dismal showing of Barrick Gold Corporation (USA) (NYSE:ABX), Newcrest Mining Limited (ASX:NCM), Eldorado Gold Corp (USA) (NYSE:EGO), Compania de Minas Buenaventura SA (ADR) (NYSE:BVN) and AngloGold Ashanti Limited (ADR) (NYSE:AU), each down at least 60%!
Beware the Elevated Dividend Yields
Unlike GLD, four of these five majors pay stock dividends. Barrick Gold Corporation (USA) (NYSE:ABX) has the highest yield at 5.5%, and Compania de Minas Buenaventura SA (ADR) (NYSE:BVN) yields 3.9%. The other two yield 1.5%-2.5%. Of course, Foolish investors should question how safe these dividends are. Barrick Gold Corporation (USA) (NYSE:ABX)’s dividend appears most at risk. Last Friday the company announced a $5 billion write-down of a massive gold/silver project in Chile. Worse, in the same press release, Barrick Gold Corporation (USA) (NYSE:ABX) hinted that other material write-downs are likely.
Barrick Gold a High-Risk Company With $15 Billion of Debt
Barrick is trading at a price not seen since the year 2000. Is Barrick a buy? Probably not. The company has $15 billion of debt and its book value is sinking like a stone. Debtholders are not happy. Therefore, not only is Barrick Gold Corporation (USA) (NYSE:ABX)’s dividend at risk, but the company may be “encouraged‘ by debtholders to issue new equity capital.
Australian major Newcrest Mining Limited (ASX:NCM) is also suffering from write-down fever. Like Barrick, but a month earlier, Newcrest Mining Limited (ASX:NCM) announced a roughly $5.5 billion write-down. This was not due to a single asset, but to all of Newcrest Mining Limited (ASX:NCM)’s assets. Alarmingly, the gold price is even lower since Newcrest Mining Limited (ASX:NCM)’s announcement. As it stands, the company’s debt/equity ratio is expected to double to 35% at June 30.
Eldorado Gold Corp (USA) (NYSE:EGO) is facing significant opposition to a key project in Greece. Although no meaningful write-down of this asset has been announced, investors should not be surprised if one pops up. This project, at about $1.5 billion, is smaller than Barrick Gold Corporation (USA) (NYSE:ABX)’s problem project, but Eldorado Gold Corp (USA) (NYSE:EGO)’s market cap is also smaller at $4.3 billion. On the positive side, Eldorado Gold Corp (USA) (NYSE:EGO)’s balance sheet is in much better shape than Barrick’s.
Compania de Minas Buenaventura SA, “BVN” is a 44% owner with Newmont Mining (51%) of yet another challenged gold mine development project. Minas Conga is Peru’s largest development stage mining project. One would think that since Compania de Minas Buenaventura SA (ADR) (NYSE:BVN) is a Peruvian company, it would have better luck tackling resource nationalism challenges, but apparently not. Compania de Minas Buenaventura SA (ADR) (NYSE:BVN) is overexposed to its home country of Peru, not a good thing these days.
