Barrick cuts dividend, signs streaming deal amid weak price
Gold producer plans to sell non-core assets in bid to fix balance sheet
Barrick Gold Corp. has slashed its dividend, signed a streaming deal and put a host of assets up for sale as it tries to reduce a crippling debt load in a weak gold price environment.
Toronto-based Barrick, the world’s biggest gold producer, has spent the past three years slashing costs and cleaning up its portfolio of assets. But the recent weakness in the gold price has put even more pressure on the company to fix its balance sheet. Gold plunged below $1,100 US an ounce in July for the first time since early 2010, severely limiting the company’s free cash flow.
On Wednesday, Barrick cut its quarterly dividend 60 per cent to 2 cents a share, a move that will save the company almost $140 million US a year. That comes after a 75 per cent dividend cut in 2013. The cut was announced in the company’s second-quarter results.
Barrick also unveiled a $610-million US streaming transaction with Royal Gold Inc. In exchange for the cash, Royal will have the right to buy a significant portion of the gold and silver output from the Pueblo Viejo mine at a discounted price.
The discount will be based on spot metal prices, and it won’t be fixed at a very low level as it is in most streaming deals. That leaves some upside for Barrick if prices improve.
“The innovative structure of this streaming agreement will allow us to crystallize significant value from Pueblo Viejo in a volatile metal price environment,” Barrick copresident Jim Gowans said in a statement.
The deal will help Barrick reach its debt reduction target of at least $3 billion US for 2015. Altogether, Barrick has announced asset sales and debt repayments this year that add up to $2.7 billion US, meaning it should meet its target quite easily. Total debt stood at $12.6 billion US at the end of the second quarter, though the recently announced asset sales will reduce that number.
But Barrick is not done selling assets. The company announced that it will begin formal processes to sell several non-core assets in Nevada and Montana: Bald Mountain, Round Mountain, Spring Valley, Ruby Hill, Hilltop and Golden Sunlight.
Barrick said it has received expressions of interest from potential buyers for these assets. Assuming they are sold, Barrick would continue its transition into a smaller, leaner gold miner that looks almost nothing like the behemoth of just a few years ago.
The company reported decent results on Wednesday that were in line with consensus analyst estimates. But the free cash flow was very limited.
Adjusted net income for the second quarter was $60 million US, or 5 cents a share. Free cash flow was just $26 million US, even though the company’s average realized selling price on its gold production was $1,190 US an ounce. Gold is about $100 US lower than that today, which shows how badly Barrick needs to pay down its debt if it wants to be more profitable.
Positively, the recently announced asset sales have reduced Barrick’s cost structure. The company now expects all-in sustaining costs of $840 US to $880 US an ounce in 2015, down from the prior target of $860 US to $895 US.
The company’s high debt load is largely due to the $7.3 billion acquisition of copper miner Equinox Minerals Ltd. at the top of the market in 2011. That transaction has proven to be a disaster that has crippled Barrick’s ability to do much of anything apart from pay down debt. Meanwhile, rival companies such as Goldcorp Inc. have taken advantage of the bear market and made acquisitions.
The innovative structure of this streaming agreement will allow us to crystallize significant value from Pueblo Viejo.