It is a well-known fact that Barrick Gold Corp. (ABX, Financial) is looking for buyers for its 50% interest in Western Australia. The probable sale of the Australian mine falls within the Canadian miner’s scope of divesting its non-core assets and finding the cash to further reduce its debt.
Kalgoorlie has recently attracted the interest of Chinese gold miners, Zijin Mining Group Co., China National Gold Group Corp. and Shandong Gold Mining Co.; Australian producers, Newcrest Mining Ltd., Northern Star Resources Ltd. and Evolution Mining Ltd.; and the Canadian producer, Kinross Gold Corp. (KGC, Financial).
But the first one signaling the will to buy Barrick’s 50% stake in Kalgoorlie is Newmont Mining Corporation (NEM, Financial), the operator of the joint venture with the Canadian miner. According to last mid-September news, the transaction could lead to the world’s biggest producer of the metal to get about $1 billion from the sale.
That is more cash that the Canadian gold producer will use to reduce the debt by $2 billion by year-end, as revealed by Kelvin Dushnisky, Barrick’s president, at the Denver Gold Forum. It will bring the total amount of long-term debt to $6.8 billion and to approximately $1.8 billion for the portion that matures before 2033.
Considering that Barrick’s cash and equivalents amounted to $2.4 billion as of the second quarter 2016, there is plenty of cash that together with the cash flow generated by operations, it could use to cut its overall debt to $5 billion in 2017. This portion of long-term debt will mature after 2032.
The Kalgoorlie mine is an open-pit mine located next to the town of Kalgoorlie about 550 kilometers east of Perth, Western Australia. From 50% interest, in 2015 Barrick produced approx. 320,000 ounces of gold (-1.8% year over year) at cash costs of $752 per ounce (-8% year over year), AISC of $886 per ounce (-14.6% year over year) and cost of sales of $307 million (-0.6% year over year).
In 2016, due to the decrease in the expected currency exchange rate, the fall in diesel prices and reduced capex, Barrick expects to sustain lower cash costs and all-in sustaining costs per ounce (350,000-365,000 ounces of gold at cash costs of $610 to $630 and all-in sustaining costs of $670 to $700 per ounce) on higher sales than 2015 at Kalgoorlie.
The lower all-in sustaining costs per ounce that Barrick expects to sustain at Kalgoorlie due to reduced capex is a sign that the company is going to divest its 50% stake in the asset located in Australia.
But Barrick’s strategy in selling its non-core assets will not end with Kalgoorlie. The company is also considering selling its 64% stake in Acacia, 50% stake in Zaldivar, the copper mine in Chile and the Lumwana copper mine in Zambia. Once all these divestments become reality, the it will have considerably improved its risk profile and strengthened its balance sheet further. With the latter being a strategy Barrick is successfully pursuing since 2015, it was able to reach the 23% reduction in total debt target with the sale of Bald Mountain and 50% of Round Mountain.
Last Friday, Oct. 8, Barrick Gold Corp. (ABX, Financial) closed at $15.73 per share, up 9 cents (or 0.58%) from the previous trading day and gained 103% year to date. But the stock heavily declined since the beginning of August (-31%).
The enterprise value/EBITDA is 6.70 and the price-book ratio (mrq) is 2.48.
Disclosure: I have no position in Barrick Gold Corp.
