How Could Barrick Gold Reduce Its Debt Further?



Project pipeline

Investors are looking forward to Barrick Gold’s (ABX) update on its internal project growth pipeline. The company has stated that it will strive to present updates on projects that show potential to add significant value. It will be interesting to watch for any updates on these projects.

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Debt reduction

Barrick Gold has reiterated that strengthening its balance sheet is its top priority. For the first nine months of 2016, it reduced debt by $1.4 billion, which is close to 70% of its 2016 target of $2.0 billion. The company stated that it’s on track to achieve its targeted debt reduction. It plans to achieve this target through existing cash balances and its 4Q operating cash flow. The company could provide another target for debt reduction in its 4Q16 results.

Even after cutting its debt, Barrick remains one of the most indebted senior gold producers. It has higher financial leverage than peers (GDX) Goldcorp (GG), Kinross Gold (KGC), Yamana Gold (AUY), and Agnico Eagle Mines (AEM).

Free cash flow generation

Barrick Gold has delivered positive FCF (free cash flow) for the last six consecutive quarters. Barrick’s management has defined value creation for shareholders in terms of FCF per share.

With higher gold prices, many gold miners can generate FCF. However, Barrick Gold is targeting a break-even FCF despite gold prices of below $1,000 per ounce. During its 3Q16 earnings call, the company stated that it’s on track to achieve break-even FCF. Barrick’s progress toward further FCF generation in 4Q16 could also be something to look forward to. In the next article, we’ll look at key expectations for Goldcorp’s 4Q16 results.


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