Are Financial Leverage Concerns Subsiding for Barrick Gold?



Financial leverage

High financial leverage is one of the biggest investor concerns for Barrick Gold (ABX). With rising gold prices since the start of the year, that concern has somewhat subsided. However, Barrick Gold is still trying to reduce its debt to maintain an optimal leverage ratio as it weathers this volatile metal price environment.

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Improving balance sheet

The company reiterated that strengthening its balance sheet its its top priority. During the first half of 2016, the company achieved $968 million in debt reductions, which is close to 50% of its target of $2 billion for 2016. The company mentioned that it will continue selling its noncore assets to achieve its target. To this end, it intends to sell a 50% stake in the KGCM operation in Western Australia. Barrick Gold’s medium-term target for debt reduction is $5 billion.

Barrick Gold has an investment-grade (BND) rating from Standard & Poor’s and Moody’s. The company has achieved a debt reduction of more than $4.1 billion (31%) since early 2015. This has also helped it save on interest expenses by $180 million annually. Even after this debt reduction, Barrick Gold remains highly leveraged compared to its peers Goldcorp (GG), Kinross Gold (KGC), Yamana Gold (AUY), and Agnico Eagle Mines (AEM). However, that should be less of a concern to investors in the environment of rising gold prices.

Managing liquidity

The company is also comfortable as far as short-term liquidity is concerned. It had a cash balance of $2.4 billion at the end of 2Q16. The company now has less than $150 million in debt due before 2018. Its maturities over the next five years are also manageable, according to the company. Its annualized interest savings have been $50 million since the start of 2016.

In the next article in this series, we’ll discuss Barrick Gold’s free cash flow.


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