Successful Debt Reduction Efforts To Stand Barrick In Good Stead Amid Subdued Gold Pricing Environment

by Trefis Team
-4.46%
Downside
19.14
Market
18.29
Trefis
ABX
Barrick Gold
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Barrick Gold has delivered on its debt reduction targets for 2016, following on from another successful year of debt reduction in 2015. The company managed to lower its net debt by roughly $2 billion over the course of 2016, as promised by the management last year, following on from around $3 billion worth of debt reduction in 2015. [1]

Net Debt Reduction

Given the decline in gold prices from 2013 to 2015, the company management made debt reduction a priority, besides endeavoring to lower operating costs. Using the proceeds of a number of non-core asset sales and cash flows from operations, the company managed to accomplish the aforementioned debt reduction objectives. In addition to lowering debt, the sale of high-cost non-core mines helped lower Barrick’s average operating costs as well. Through a combination of asset sales and operational improvements, Barrick has managed to considerably lower its all-in sustaining costs (AISC) metric, which represents the overall costs required to sustain ongoing mining operations.

AISC Reduction

The success of Barrick debt and cost reduction efforts has prompted us to revise the company’s price estimate to $18.29. Lower debt levels and an improved AISC metric will certainly stand the company in good stead, given that gold prices are likely to average lower this year, as compared to last year. Strengthening economic conditions in the U.S. and the likelihood of more interest rate hikes by the Fed later this year are likely to weigh on gold prices. Thus, Barrick Gold has made the right moves to counteract the negative impact of lower gold prices.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Barrick Gold

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Notes:

  1. Barrick Gold’s Q4 2016 Earnings Call Transcript, Seeking Alpha []
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