Canadian mining companies must still find ways to conserve cash to deal with lower commodity prices or risk downgrades from credit rating agencies.
Despite efforts to improve their balance sheets last year, Toronto-based Kinross Gold Corp. and Iamgold Corp. have been warned they need to do more.
Moody's Investors Service revised its outlook on Kinross to negative from stable, saying the company's political risks and financial leverage could increase while its gold output declines.
And Standard & Poor's Ratings Services changed its outlook on Iamgold to negative from stable, citing concerns with the miner's profitability.
Although a negative outlook does not automatically lead to a downgrade, it signals that a company must put its business on a sounder footing.
In this lower commodity price environment, a downgrade would be deeply damaging and raise borrowing expenses at a time when miners are looking for further cost reductions.
Kinross' "business profile is weakening," said Darren Kirk, senior credit officer with Moody's.
The miner, whose debt is ranked the lowest investment grade rating, spent last year reworking operations and slashing costs.
The company defended its ranking and said its outlook remained unchanged at the other big rating agencies.
"Our balance sheet is one of the strongest among our peers," Kinross said.
Iamgold is in a more precarious position with its credit already in so-called junk, or non-investment grade, status.
The miner on Wednesday reported $772.8-million in impairment charges on its operations in Suriname, Quebec and West Africa mostly because of lower gold price assumptions.
Iamgold also spent last year reducing expenses and has been adamant that it would not have to raise funds or draw on its credit facilities.
S&P said lower gold prices could erode Iamgold's financial flexibility.
Iamgold said S&P lowered their gold price assumption and said when the rating agency calculated its gross debt it did not take into account its cash or bullion, which stood at $380-million at the end of last year.
This comes as the country's senior gold companies, Barrick Gold Corp., Kinross and Goldcorp Inc. along with smaller producers Agnico Eagle Mines Ltd. and Yamana Gold Inc. collectively wrote down more than $17-billion in assets last year. Many have reduced their dividends amid the downturn in gold prices.
Don Marleau, analyst with Standard & Poor's, said the industry's renewed focus on returns, margins and free cash is supportive of credit.
But he said: "That is really in a situation where balance sheets, in some cases, are already stretched."
"It's very much a reaction to a lower than expected gold price at this point. So it's positive under the circumstances, but it's really just them fighting off what has been a negative trend," he said.
Although the price of gold is enjoying a rebound so far this year, in 2013 it lost nearly 30 per cent of its value and is currently trading around $1,330 (U.S.) an ounce.
Moody's is evaluating all gold companies using an $1,100 gold price assumption. The rating agency is currently evaluating Barrick's debt, which is ranked at the second lowest investment grade rating.
Over the past few days, Yamana as well as nickel and energy producer Sherritt International Corp. cut their dividends and recorded impairment charges.
Mining companies that have failed to improve their cash flow have not only lost significant market value, they been hounded by angry shareholders. Barrick overhauled its board of directors and is reworking its executive compensation plans under pressure from its institutional investors.
Sherritt, which has operations in Cuba and Madagascar, is embroiled in a proxy battle with one of its major shareholders. Its stock fell 9 per cent on Wednesday after announcing a loss.
"We're focused on holding them accountable and hopefully all the shareholders will hold them accountable," said George Armoyan, chief executive of investment company Clarke Inc., which controls 5 per cent of Sherritt's stock and is trying to overhaul the miner's board of directors.