Barrick Gold looks to keep momentum with US$2 billion debt reduction target for 2016

Barrick Gold Corp. has set aggressive new targets for debt and cost reduction as it looks to continue momentum following a largely successful 2015.

However, the Toronto-based mining giant also offered up declining production guidance over the years to come. That underscores the difficulties facing the whole gold mining industry, that has been burning this season as prices have jumped.

Barrick said on Wednesday night it expects to cut its debt load by “at least” US$2 billion in 2016 after reducing it by more than US$3 billion last year. That would go ahead and take overall debt down to US$8 billion and eliminate lots of lingering concerns about Barrick’s balance sheet, which got over-leveraged because of a disastrous $7.3-billion copper acquisition this year. Barrick expects to meet the target through its cash generation in addition to asset sales and partnerships.

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At the same time, the organization also set an infinitely more goal: reduce all-in sustaining costs to below US$700 an oz by 2019. Barrick’s costs were US$831 an oz in 2015, which was already the very best among senior gold miners. The majority of the gold market is still above US$1,000 an oz.

The fact that Barrick could even think about a target this low implies that it is making significant strides under John Thornton, that has overhauled the company since taking over as chairman in 2014. He’s removed layers of management, increased accountability and tried to return Barrick to its entrepreneurial roots. The company became bloated over 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 inside 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 could cause some concern. The organization expects to produce between five and 5.5 million ounces this season, down from 6.1 million in 2015 (partly because of asset sales). Output is expected to remain flat in 2017, and then drop to between 4.6 and 5.1 million ounces in 2018. By comparison, Barrick used to produce a lot more than eight million ounces a year.

Like other gold miners, Barrick is centered 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 have been very rare over the past decade, and global output is expected to fall significantly over the next several years. The lack of growth in the sector might make it less appealing to investors, as many companies will struggle simply to keep their production stable. However, that may be bullish for prices.

Barrick recently reclaimed the largest market capitalization in the gold industry, largely because of its strong operating performance. The organization said it generated US$471 million of free income in 2015 after being cash negative in the prior 3 years.

The stock has rallied sharply to date this season amid rising gold prices. It’s a lot more than doubled in the lows reached last fall.

pkoven@nationalpost.com

Twitter.com/peterkoven