How Barrick Gold Plans to De-Lever Its Balance Sheet in 2017
High financial leverage has been one of the biggest investor concerns for Barrick Gold (ABX) for a long time. But with the rise in gold prices in 2016 and the generation of free cash flow, this concern has begun to subside—somewhat, at least.
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Strengthening balance sheet
Barrick Gold has reiterated that strengthening its balance sheet is its top priority. The company achieved debt reduction of $2.0 billion in 2016. It also intends to reduce its net debt from $7.9 billion at the beginning of 2017 to $5 billion by the end of 2018. The company targets half of this total reduction of $2.9 billion for 2017.
Barrick also noted that the major drivers for this reduction will be cash flow from operations, portfolio optimization, and new joint ventures and partnerships. In 1Q17, the company reduced its total debt by $178 million, mainly due to the maturities during the quarter and advanced payments toward its project finance loan at Pueblo Viejo.
Barrick announced the 50% stake sale of its Veladero mine to Shangdong Gold for $960 million in April 2017. The majority of the proceeds from this transaction will be used for debt reduction.
Meanwhile, the company has achieved a debt reduction of more than $5.0 billion since early 2015, and this has helped it save more than $180.0 million annually on interest expenses. But even after this debt reduction, the company remains highly leveraged compared to its peers, including Goldcorp (GG), Kinross Gold (KGC), Yamana Gold (AUY), and Agnico-Eagle Mines (AEM).
That said, Barrick Gold is comfortable with its short-term liquidity. It had a cash balance of $2.3 billion at the end of 1Q17, and now, the company has less than $100.0 million in debt due before 2019. About 64.0% of its outstanding debt doesn’t mature until after 2032.
In the next part of this series, we’ll look at Barrick Gold’s free cash flow.