Barrick Gold Corp. has set aggressive new targets for debt and cost reduction because it looks to carry on momentum after a largely successful 2015.
However, the Toronto-based mining giant also offered up declining production guidance over the years to come. That underscores the challenges facing the whole gold mining industry, that has been burning this season as prices have jumped.
Barrick said on Wednesday night it expects to chop its debt load by “at least” US$2 billion in 2016 after reducing it by more than US$3 billion this past year. That would take the overall debt right down to US$8 billion and eliminate a lot of lingering concerns about Barrick’s balance sheet, which got over-leveraged due to a disastrous $7.3-billion copper acquisition in 2011. Barrick expects to satisfy the target through its cash generation in addition to asset sales and partnerships.
Related
- Barrick Gold Corp has returned on the top as Canada’s best-performing stock and the world’s best gold company
-
-
-
At the same time, the company also set a much more challenging goal: reduce all-in sustaining costs to below US$700 an oz by 2019. Barrick’s costs were US$831 an oz in 2015, that was already the best among senior gold miners. The majority of the gold industry is still above US$1,000 an oz.
The proven fact that Barrick may even consider a target this low implies that it’s making significant strides under John Thornton, that has overhauled the organization since taking over as chairman in 2014. He has removed layers of management, increased accountability and tried to return Barrick to the entrepreneurial roots. The organization became bloated through the years, and was ill-prepared when gold prices plunged in 2013.
“We are going back to a high-performance culture, characterized by disciplined capital allocation, consistent execution and relentless self-improvement,” Barrick said in a statement that sounded as if it came right from Thornton’s mouth.
The company also reported solid fourth quarter results on Wednesday. Adjusted earnings of US$91 million, or US8 cents a share, were in front of most analyst expectations.
But Barrick’s production outlook might cause some concern. The organization expects to create between five and 5.5 million ounces this season, down from 6.1 million in 2015 (partly due to asset sales). Output is anticipated to stay flat in 2017, and then drop to between 4.6 and 5.1 million ounces in 2018. In comparison, Barrick accustomed to produce a lot more than eight million ounces a year.
Like other gold miners, Barrick is focused on maximizing free income rather than production. But the potential decline in output could still disappoint some investors, who may prefer companies with more stable or growing production profiles. Barrick’s key growth prospect, the Goldrush project in Nevada, is still years away from production.
The outlook illustrates the challenge faced through the entire industry. New gold discoveries happen to be very rare in the last decade, and global output is expected to fall significantly within the next several years. The possible lack of development in the sector might make it less attractive to investors, as numerous companies will struggle just to keep their production stable. However, that may be bullish for prices.
Barrick recently reclaimed the biggest market capitalization within the gold industry, largely because of its strong operating performance. The company said hello generated US$471 million of free income in 2015 after being cash negative in the prior three years.
The stock has rallied sharply so far this year amid rising gold prices. It’s more than doubled from the lows reached last fall.
pkoven@nationalpost.com
Twitter.com/peterkoven
