Barrick says becoming debt-free within a decade is in reach

TORONTO – Barrick Gold Corp., the largest miner of the metal, could be free of debt within a decade on bullion-price gains, cost cuts and asset sales, president Kelvin Dushnisky said.

The Toronto-based miner had about $9-billion in debt in the first quarter, down from a peak of $15.8-billion in the second quarter of 2013. Dushnisky said debt could fall to $5-billion in three years and zero within 10 years.

“That’s not unreasonable,” Dushnisky said in an interview on Bloomberg TV Canada. "Yet again, it’s gold-price dependent. We’ve been very clear, Barrick was the only company with an A-rated balance sheet for the longest time. Our intent is to be strong investment grade, and we’d like to be in the position where we have no corporate debt.”

Barrick has set a target of paying down $2-billion in debt this year after exceeding its $3-billion debt-reduction goal in 2015. Dushnisky said the company had already achieved 40% of that goal by the end of the first quarter and, if the tailwinds continue, it may exceed those targets.

"We certainly could. We’re staying with our $2-billion target for now," he said during a separate interview in Toronto.

To watch Bloomberg TV’s interview with Dushnisky, click here

Gold futures have surged 28% to $1 357.40/oz this year on the Comex in New York.

DEBT STRATEGY

Part of the debt strategy will involve divesting Barrick’s noncore assets, including its 50% stake in its Chilean copper mine, Zaldivar; its Zambian Lumwana copper mine; and its 64% interest in the publicly traded African operation, Acacia Mining, at the right time, Dushnisky said. He added that it will likely at one point also include the sale of its stake in the Australian joint venture it has with Newmont Mining Corp. in their Kalgoorlie Super Pit.

Gary Goldberg, CEO of Newmont, said this week his company is still interested in acquiring Barrick’s stake. The sides remain apart on valuation, Dushnisky said. There are no formal discussions or advisers hired yet, he added.

"It’s a great asset," Dushnisky said. "Newmont would be a natural buyer owner given that they’re a 50-50 partner. Like all our non-core assets, there will be a point in time when it makes sense to divest and if we get what we think is fair value for it, then clearly it falls into that category. But we’re not in discussions at the moment."
Expressions of Interest

Barrick has no active discussions on any of its non-core assets, Dushnisky said, although it continues to receive expressions of interest. If one of those proposals comes in at the right price, it could trigger a formal process, he said.

At the same time, now that Barrick is back on better footing, it is warming to the idea of once again becoming a buyer, Dushnisky said.

"There’s nothing on our radar screen now and we’ll be very patient," he said. "We worked really hard over the last two years, last year in particular, to show that we’d be disciplined sellers and it’s just as important now that if we do make an acquisition that we show we’re discerning buyers."
Americas Focus

Any acquisition would likely be financed with equity, he said. The goal would be to find a company or project that would meet its target of an internal rate of return of 15% with gold at $1,200 an once, and something that could be cash flow positive at $700/oz gold by 2019 once further cost-cutting is implemented. He said the company was also more focused on margin than the scale of its operations.

"We’ve been clear that we like the Americas focus,”’ he said. “It doesn’t mean that we would never look at anything outside of the Americas. But there’s a higher crossbar for that.”

In the meantime, Barrick’s debt-cutting goals have been buoyed by the rising price of gold. Dushnisky said for every $100 increase in the price of gold, Barrick’s earnings are improved by about $500-million, more than half of which is free cash.

Dushnisky wouldn’t rule out a dividend increase before it reduced its corporate debt to $5-billion, but said that mark is a key threshold.

"Paying a robust dividend is a place where the company wants to be again,” he said. “I just can’t give you a specific time for when that will happen.”