Barrick Gold Takes Key Steps towards Debt Reduction in 2015
Sale of Cowal mine
Barrick Gold (ABX) announced on May 24 that it had reached an agreement to sell its Cowal mine to Evolution Mining. The cash consideration for sale would be $550 million. The company expects the transaction to be completed in 3Q15. During its 1Q15 earnings release, Barrick first announced its plans to sell the asset.
Cowal mine is based in New South Wales, Eastern Australia. It is an open-pit mine, which produced 268,000 ounces of gold in 2014 at all-in sustaining costs (or AISC) of $787 per ounce.
Sale is consistent with debt reduction strategy
The sale of Cowal mine is consistent with Barrick’s strategy of debt reduction. Barrick has a goal of $3 billion in debt reduction for 2015. The company says that proceeds from this sale will be used to pay down debt, which stood at $13.1 billion at the end of 2014. This divestment will also help the company save on general and administrative expenses, as it will close the office in Perth, Australia.
Barrick’s huge debt burden has been a major investor concern for a while now. The company’s debt started escalating with the acquisition of Equinox Minerals in 2011 for $7.1 billion. This, along with the stalled Pascua-Lama project, led Barrick to write off a massive $8.7 billion in 2013.
Newmont Mining (NEM) also plans to repay $750 million in 2015. That would include its PTNNT (PT Newmont Nusa Tenggara) project debt as well as payments toward its 2019 term loan. Meanwhile, Goldcorp (GG) has the strongest balance sheet of all senior gold producers in North America.
Combined, NEM, ABX, and GG form 20.2% of the Market Vectors Gold Miners ETF (GDX). Investors can access the gold industry by investing in gold-backed ETFs like the SPDR Gold Trust (GLD).
Impact on production
Barrick’s 2016 gold production will decline by close to 4%. Barrick’s guidance from the mine was 250,000 to 280,000 ounces for 2015 at an AISC of $740 to $775 per ounce.
Barrick had outlined Cowal mine, Porgera, and Zaldivar mine as some of the assets that it plans to sell. Now, the sale of Cowal mine has been agreed upon. In the next article, we’ll see how the Porgera asset monetization is progressing.
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