What is Barrick’s simple strategy to increase returns?



Barrick’s capital: Where will it go?

Barrick Gold Corporation (ABX) has stated that in order to increase returns, its capital will go only to high-quality assets. These assets must be in the right places that are capable of delivering on the company’s expected rates of return over the course of the metal price cycle.

This will help produce a level of cash flow required for the company to reinvest in growth and buybacks when appropriate. It will also provide a reliable dividend.

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Benchmarking against 15% hurdle rate

Going forward, the company’s focus will be on its investments in the core regions. This means high-quality, long-life assets in attractive jurisdictions. Barrick expects its portfolio to deliver 10% to 15% return on invested capital through the metal price cycle.

For any individual project, the company will assess it against a hurdle rate of 15%. It will defer, cancel, or sell projects that cannot achieve this target.

Competition for capital

When it comes to investing in its existing mines to sustain or expand them, the company will not spread its capital evenly across the portfolio. Its operations must compete for it, and it’s not going to subsidize loss makers.

In addition, Barrick is not going to invest in a high-return project at a mine that is otherwise failing to meet overall expectations for returns on invested capital. Neither will it invest in one that doesn’t align with its strategic focus. Assets that are unable to achieve a 10% to 15% return on invested capital will be sold.

In the fullness of time, investments in new projects will compete with acquisitions and share buybacks.

Many companies, including Newmont Mining (NEM) and Goldcorp (GG), have also embarked on stated policies of disciplined capital allocation in order to increase returns.

NEM, GG, and ABX form 7.2%, 10.3%, and 8.8%, respectively, of VanEck Vectors Gold Miners ETF’s (GDX) holdings. The SPDR Gold Trust (GLD) is the world’s largest physical gold-backed ETF that tracks the price of spot gold.


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