Is Financial Leverage Less of a Concern for Barrick Gold Now?



Financial leverage

High financial leverage is one of the biggest investor concerns for Barrick Gold (ABX). With the rise in gold prices in 2016 and the generation of free cash flow, that concern has subsided somewhat. However, Barrick Gold is still trying to reduce its debt to maintain an optimal leverage ratio as it weathers this volatile precious metal price (GLD) (SLV) environment.

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Improving its balance sheet

Barrick Gold has reiterated that strengthening its balance sheet is its top priority. The company achieved debt reduction of $2.0 billion in 2016. That’s in line with its targeted debt reduction plan for the year. It intends to reduce its total debt by $2.9 billion by the end of 2018. It’s targeting half of that reduction in 2017.

The company also noted the major drivers for this reduction, such as cash flow from operations, selling additional non-core assets, and new joint ventures and partnerships.

Barrick Gold has achieved a debt reduction of more than $5.0 billion since early 2015. That has helped it save more than $180.0 million annually on interest expenses. Even after this debt reduction, the company remains highly leveraged compared to its peers, including 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

Barrick Gold is comfortable with its short-term liquidity. It had a cash balance of $2.4 billion at the end of 4Q16. The company now has less than $200.0 million in debt due before 2019. About 63.0% of its outstanding debt doesn’t mature until after 2032.

In the next and final part of this series, we’ll look at Barrick Gold’s free cash flow.


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