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Why Debt Is Less of a Concern for Barrick Gold Investors Now

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ABX’s financial leverage

Barrick Gold (ABX), along with other gold miners, has been punished for a long time by investors due to high debt, especially while precious metal prices (GLD)(SLV) were in for a downslide. Barrick, Newmont Mining (NEM), and Kinross Gold (KGC) are among the miners that paid huge sums to acquire assets at the peak of the cycle. Most of these assets were subsequently written off due to poor economics, infrastructure issues, and weaker precious metal prices. Some other miners—such as Goldcorp (GG) and Agnico Eagle Mines (AEM), on the other hand—resisted paying high for assets at or near the peak of the cycle.

Barrick, along with its peers, has, however, reduced debt as a priority in the last few years. This focus has paid off, with debt levels in a much more manageable range.

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Strengthening balance sheet

ABX maintained the strengthening of its balance sheet as its top priority in its 3Q17 results. The company paid off $3.1 billion in total debt in 2015 and another $2.0 billion in 2016. It had aimed for total debt reduction of $1.45 billion for 2017. As of 3Q17, it has already paid off $1.5 billion—exceeding its target.

ABX is aiming for a total debt reduction of $5 billion by 2018 from $7.9 billion at the start of 2017. ABX aims to achieve this reduction through:

  • cash flow from operations
  • portfolio optimization
  • new joint ventures and partnerships

Maturity profile remains comfortable

Barrick’s maturity profile remains comfortable. Only $66 million of debt is due before 2020, excluding capital leases. The majority of the debt is due post-2032. The company has refinanced portions of the debt, pushing the maturity wall further into the future. This approach gives the company more time to manage debt in the long term and focus on other growth and productivity initiatives in the short-to-medium term. ABX had a $2.0 billion cash balance at the end of 3Q17 and a fully undrawn $4.0 billion credit facility.

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