In spite of favorable gold prices and strong operating cash flow, Standard & Poor’s analysts have been unhappy with gold producers’ rising costs and higher debt burdens.

In an analysis published Tuesday, S&P Credit Analysts Donald Marleau and George Economou observed, “Rating pressure is emerging in the gold mining industry as companies struggle to boost returns, despite the long-standing run of gold prices.”

“In fact, some of these companies are taking on unprecedented levels of debt to fund large, risky investments or acquisitions to increase—or even merely sustain—gold output,” they said.

Of the four North American gold companies reviewed by S&P, Goldcorp’s “track record of growing output, lower costs, and stable debt compares favorably with its larger, more diverse ‘BBB+’ rated peers Barrick and Newmont,” said S&P, “Moreover, the company’s ‘modest’ financial risk profile acts as a considerable buffer against potential shocks, such as unstable prices and costs or sudden spikes in capital spending needs.”

In their analysis, Marleau and Economou observed, “Since its inaugural bond issue in 2009, Goldcorp has stood alone among gold miners in increasing output and earnings without adding meaningful amounts of debt.”

“All things being equal, we wouldn’t expect the company to face a downgrade unless gold prices were to drop about 50%,” S&P advised.

Meanwhile Marleau and Economou said they believed Barrick’s rating “is most at risk among its peers.”

“This company holds the peer group’s largest debt load and highest leverage, and consequently has the least cushion for deteriorating credit measures at the current rating,” they said. “We estimate that Barrick could face another downgrade if gold prices were to decline about 25%, but the company also has the industry’s highest exposure to overruns in capital expenditures, given its large expansion projects.”

The credit ratings on Newmont and Kinross also face similar stresses, S&P advised.

“We believe the respective ‘BBB+” and ‘BBB-‘ ratings would be under pressure if gold prices declined about 35% over our 24-month rating horizon with no meaningful operating or capital cost adjustment,” said the analysts. “Our outlook on both companies is stable, however, because we believe that such a decline in gold prices would be unusually large and unexpected, and because the companies should be able to make some spending adjustments to support credit quality.”

“Moreover, upward ratings revisions appear unlikely for either in the next few years,” S&P stressed.

In their analysis, Marleau and Economu noted that Goldcorp has the lower cash costs among senior gold producers, on both a byproduct and co-product basis. “We believe that Goldcorp’s prospects for retaining its cost leadership among senior producers are good, with the ramp-up of the Penasquito mine in Mexico, and steady progress toward commercial production at its Pueblo Viejo joint venture with Barrick in the Dominican Republic…”

S&P observed that Barrick had the peer group’s second-best cost profile—and the most stable—with cash costs that remain below the industry average and are rising at the slowest rate among its peers.

Meanwhile, the analysts found that Newmont’s cash costs have increased at a pace consistent with the investment grade peer average of about 50% on a co-product basis and 75% on a byproduct basis since 2008.

“Kinross’ co-product cash costs are about average for the broader peer group of investment-grade gold miners, including the Africa-based producers that have escalating unit costs, but are markedly higher on a byproduct basis than its North American peers,” observed Marleau and Economu. “Although the company has no particular low-cost asset that supports profitability at even the weakest points in the gold price cycle, most of its mines are competitive and should maintain steady production if gold prices fall.”

The analysts observed that the gold mining industry’s unit cash margins have benefited from the higher gold prices, but overall profitability has been hindered by escalating operating costs, high capital costs and difficulties surrounding expansion projects, and underperforming acquisitions.

“As such, extraordinarily strong cash margins are tempered by lower returns on capital, relatively poor share price performance, and some credit degradation,” they advised.

In their analysis, S&P noted that Barrick and Kinross both made major acquisitions “that did not yield the benefits the companies expected, primarily because higher operating and capital costs at the target assets will pressure prospective returns.”

With its 24 mines in 12 nations, Barrick has the most diverse portfolio among the four major North American gold miners reviewed by S&P.

 “Newmont also exhibits better than average diversity, with 16 mines and about one-quarter of its 2011 EBITDA from several mines in its long-standing operations,” the analysts said. However, two of the company’s three largest cash flow contributors are located in the riskier mining jurisdictions of Peru and Indonesia “with recent disruptions ranging from changes in law, political uncertainty, and local protests that are increasingly common for miners in many countries.”

In contrast, Barrick’s largest cash flow contributions are from mines in relatively stable jurisdictions such as Nevada and Chile, the analysts noted.

Goldcorp produces three-quarters of its gold in Canada and Mexico and maintains its strategic focus on politically stable jurisdictions in the Americas, S&P observed. However, Kinross’ largest cash flow contributors and largest capital projects are in the politically risky nations of Russia and Mauritania in West Africa.