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.
Improving its balance sheet
Barrick Gold has reiterated that strengthening its balance sheet is its top priority. The company achieved debt reduction of $968 million in the first half of 2016. For the first nine months, it was $1.4 billion. This is close to 70.0% of its target of $2.0 billion for 2016. The company mentioned that it’s on track to achieve its targeted debt reduction in 2016. It plans to achieve this target through existing cash balances and fourth-quarter operating cash flow.
The company also noted that with a stronger balance sheet, it will be better able to withstand gold price (GLD) volatility and raise free cash flow over the long term.
The company has achieved a debt reduction of more than $4.5 billion since early 2015. This has also helped it save more than $180 million annually on interest expenses. Even after this debt reduction, Barrick Gold remains highly leveraged compared to 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.
The company is also comfortable as far as short-term liquidity is concerned. It had a cash balance of $2.6 billion and an undrawn credit facility of $4.0 billion at the end of 3Q16. The company now has less than $200 million in debt due before 2019. Its maturities over the next five years are manageable, according to the company.
In the next part of this series, we’ll look at Barrick Gold’s free cash flow.