27 May

How Has Barrick Progressed towards Its Debt Reduction Target?

WRITTEN BY Anuradha Garg

Barrick sells non-core mines

Barrick Gold (ABX) has stated its intention to focus on mines in the Americas region going forward. This region includes the Nevada region in North America and the Andes region in South America. The mines in these regions usually have a lower cost of production. Thus, Barrick intends to selectively sell off mines in other regions to reduce its cost of production as well as to reduce its debt. In keeping with this strategy, the company has sold off non-core mines, reducing the number of mines from 27 to 19 in the last two years.

How Has Barrick Progressed towards Its Debt Reduction Target?

Debt reduction target

In addition to decreasing production costs, Barrick has set a target of reducing debt by $3 billion by the end of 2015. Barrick is following a three-pronged strategy to achieve this. As depicted in the graph above, this includes maximizing cash flow, selling non-core assets, and forming joint ventures and partnerships. To read more about the three-pronged approach, read Market Realist’s Barrick Gold plans to deleverage its balance sheet in 2015.

Barrick has higher financial leverage compared to its peers, including Goldcorp (GG), Yamana Gold (AUY), and Agnico Eagle Mines (AEM). Barrick’s debt is a major concern for investors. If Barrick is able to reduce its debt as planned, it could lead to a re-rating of its stock.

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.

Series overview

In this series, we’ll discuss the recent steps taken by Barrick towards the attainment of its debt reduction target. There have been two major developments in this regard. One is the 100% sale of the Cowal mine in Australia and the other is the 50% stake sale in the Porgera joint venture (or JV) in Papua New Guinea. We’ll discuss how these steps will lead to debt reduction and the implications of these steps for Barrick’s production profile.

To find out more about Barrick Gold, read Barrick Gold: Overview of the world’s largest gold mining company.

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