Barrick Gold Nears Debt Reduction Target for 2015—What’s Next?



Debt prepayment

Barrick Gold (ABX) set an ambitious target to reduce its debt by $3 billion in 2015. As of 2Q15, it has repaid $250 million of debt. As well, it has announced $2.45 billion in sales agreements. Combined, these transactions account for approximately 90% of its debt reduction target.

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Improving balance sheet

A part of the $550 million in proceeds from the Cowal mine sale will be used to prepay $229 million toward the 2.9% notes due in 2016. These notes will be redeemed on September 9, 2015. After this, Barrick will have less than $600 million due before the end of 2017. Assuming it pays down $3 billion on its debt this year, Barrick will still have $9.5 billion in long-term debt.

High relative debt

Barrick Gold’s net debt-to-forward EBITDA ratio is 2.9x, which is higher than the ratio of its peers, as you can see in the above graph. Agnico Eagle Mines (AEM) and Kinross Gold (KGC) have net debt-to-forward EBITDA ratios of 1.5x and 1.3x, respectively.

Barrick’s peer Newmont Mining (NEM) is also prepaying its debt. It plans to repay $750 million in 2015, out of which it has so far paid $275 million in the first half of the year. Goldcorp (GG), on the other hand, is comfortable as far as its debt position is concerned. It repaid $305 million in debt during 2Q15.

Combined, NEM, ABX, and GG form 19.1% of the VanEck Vectors Gold Miners ETF (GDX). Investors can access the gold industry by investing in gold-backed ETFs such as the SPDR Gold Trust (GLD).

Barrick’s debt started escalating with the $7.1 billion acquisition of Equinox Minerals in 2011. This, along with the stalled Pascua-Lama project, led Barrick to write off a massive $8.7 billion in 2013.

Comparatively excessive debt has been a disadvantage for the stock for quite some time now. Earmarking other assets for sale will allow Barrick Gold to reduce its debt going forward and possibly eliminate this disadvantage.


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