Royal Gold Streaming Agreement A Smart Move For Barrick As It Looks To Shed Debt

August 17th, 2015 by Trefis Team

Barrick Gold Corporation (NYSE:ABX) recently announced the signing of a precious metals streaming agreement with Royal Gold, a smart move given the weak gold pricing environment and the company’s heavy debt burden. [1] Barrick will receive an upfront payment of $610 million from Royal Gold in exchange for rights to purchase a portion of the gold and silver produced at the Pueblo Viejo gold mine. [1] The signing of the streaming agreement with Royal Gold is a part of Barrick’s ongoing efforts to reduce its debt burden.

  • Gold prices have averaged roughly $1,188 per ounce so far this year, which is around 6% lower than the average value for last year. [2] Gold prices have fallen over the course of the last year or so, with expectations of an interest rate hike by the Fed weighing on prices of the metal. The following chart illustrates the trajectory of gold prices so far this year.

Gold Prices in 2015, Source: Kitco

  • Given the weak gold pricing environment and Barrick’s heavy debt burden, Moody’s recently downgraded Barrick’s credit rating to the lowest investment grade rating. [3] A reduction of Barrick’s credit rating will raise borrowing costs for the company.
  • Barrick has targeted a $3 billion reduction in its debt burden in 2015. [4] The company’s debt stood at $13.1 billion at the end of 2014. [5] Through a combination of various assets sales and deals, including the streaming deal with Royal Gold, the company is close to securing its debt reduction target for the year. However, given that gold prices are likely to remain fairly weak this year, Barrick’s short-term prospects are unlikely to improve significantly.

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Notes:
  1. Barrick Announces Streaming Agreement With Royal Gold, Barrick Gold News Release [↩] [↩]
  2. Gold Price Charts, Kitco [↩]
  3. Barrick Credit Rating Downgraded by Moody’s on High Debt Levels, Bloomberg [↩]
  4. Barrick Gold Q2 2015 Earnings Call Transcript, Seeking Alpha [↩]
  5. Barrick Gold’s 2014 40-F, SEC [↩]