In Gold We Trust: Record Prices and Peak Credit Metrics for Miners

The price of gold has been on a steady rise since October 2023, when it was trading around the $1,800 per ounce level. The price is now at the $3,300 level, representing an increase of 83%. This significant run-up in a span of only 20 months has led to a dramatic increase in earnings and cash flows for mining companies focused on the exploration/development and production of gold.

Key highlights include:
-- The record price of gold is driven by several factors that have collectively worked together to create the perfect storm in terms of demand.
-- Commodities trade in cycles and gold is no different, which makes it prone to prolonged periods of price increases and prolonged periods of price decreases that can span over many years.
-- We believe in rating through the cycle where our credit ratings are not influenced by peaks and throughs of the commodity price cycle. Accordingly, we will generally cap our credit rating to one notch above a mining company's underlying business risk profile to account for unusually strong metrics brought on by record gold prices.

"The current gold price environment provides an opportunity for mining companies to significantly improve their business risk profiles via increasing mine lives at their key operations with increased exploration/development spending; acquisition of high quality operations that could improve their overall cost structure; expanding into new commodity segments to improve diversification; or acquiring assets located in more stable, mining friendly jurisdictions, thus reducing their political risk profiles," said Brian Szeto, Vice President of Morningstar DBRS Corporate Ratings team. "All are examples of ways that could potentially lead to positive rating actions if executed correctly and represent a golden opportunity for miners to invest in their futures and ensure the profitability of their business even as they enter a period of a lower gold price environment."