Tackling Barrick Gold debt

During its 1Q15 earnings call, Barrick Gold (ABX) reiterated its three-pronged approach to achieving its number-one priority—deleveraging its balance sheet by $3 billion in 2015. In this article, we’ll discuss Barrick’s progress on this front and how it plans to finish what it started. If done the way it plans to, Barrick stock could be re-rated.

Barrick’s debt burden is huge next to those of its peers Newmont Mining (NEM), Goldcorp (GG), and Kinross Gold (KGC). It’s a major concern for investors. In 1Q15, Newmont Mining prepaid $200 million of a term loan that matures in 2019.

Barrick Gold Plans to Deleverage Its Balance Sheet in 2015

Step one: Maximize cash flow

To maximize cash flow, Barrick is focusing on more efficient capital spending, reduced general and administrative costs, and profitable growth. With this approach, Barrick expects to save $30 million on G&A (general and administrative expenses) and overhead in 2015 and $70 million by 2017.

According to the initial capital review, Barrick has identified $200 million in capital expenditure cuts for 2015. It’s also deferring infill drilling that only adds minimal additional ounces. Finally, it’s assessing and optimizing on-site headcount reductions.

Step two: Non-core asset sales

Barrick has already stated its intent to sell its Porgera JV (joint venture) in Papua New Guinea and its Cowal mine in Australia. In line with due diligence requirements, site visits are being conducted with prospective buyers. A number of companies are involved in the process of selling these mines.

Step three: JVs and strategic partnerships

The company says that it will enter into joint ventures and strategic partnerships only if they make sense. In keeping with this approach, Barrick has initiated a process to sell a stake in Zaldivar mine. It’s also exploring other similar opportunities.

Gold-backed ETFs such as the SPDR Gold Trust (GLD) and the VanEck Vectors Gold Miners Index (GDX) are good alternative ways to get exposure to gold. Barrick Gold (ABX) forms 7% of GDX’s holdings.

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