Barrick shifts focus to growth as it looks to replenish project pipeline after years of debt reduction

After several years marked by operational difficulties and debt reduction, Barrick Gold Corp. on Tuesday opened its first quarter earnings in 2018 by telling shareholders it received two credit upgrades and is returning its focus to growth.

Gold production hit 1.05 million ounces this quarter - down 20 per cent from last year and behind pace to meet its annual target of 4.5 to 5 million ounces - but in line with guidance. Even if it meets that target, years of declining gold production from its peak of 8.6 million ounces in 2006 means that Barrick may lose its title as the world's largest gold producer to Colorado-based Newmont Mining Corp., which is predicting production of between 4.9 million and 5.4 million ounces this year.

Still, with less than $100 million in debt due before 2020, Barrick executives said the company is shifting to a growth strategy, focusing on Nevada and the Dominican Republic, and will no longer sell assets in order to reduce its billions of dollars in debt.

"We now do not intend to sell further assets for the purpose of debt repayments," Catherine Raw, chief financial officer told shareholders during an earnings call on Tuesday.

Proceeds from any asset sales will be plowed into new projects or returned to shareholders, according to a company statement.

Raw added that the company will use its US$2.4 billion in cash and its free cash flows to further reduce its debt from US$6.4 billion to US$5 billion by the end of the year.

During the past three years, the company spent about US$6.7 billion on debt payments, which reduced its total load from US$13.1 billion in 2014 to US$6.4 billion - 75 per cent of which is due after 2030, according to an investor presentation slide given earlier this year at the Bank of Montreal investor conference in Hollywood, Florida.

On Monday, Barrick Gold said its net income fell to US$158 million in its fiscal first quarter, down more than 300 per cent from the same time a year ago.

Analysts' reaction to the earnings were mixed. CIBC rated the stock neutral with a price target of $17 in the next 12 to 18 months, far above its trading price of $12.92 on Tuesday morning.

"The continued focus on cost efficiency yielded another solid quarter in earnings, which should be well received," CIBC analysts David Haughton and Terry Hsui wrote in a note on Tuesday morning.

They noted Barrick reported adjusted quarterly earnings of 15 cents per share, above their estimate of 10 cents and the consensus of 14 cents.

Andrew Kaip, an analyst at BMO Capital Markets, wrote that while Barrick delivered slightly better than expected earnings per share, its cash flows and free cash flows - of US$507 million and US$181 million respectively - "lagged our expectations."

This March, Barrick paid a dividend of U.S. 3 cents per share for the quarter, but Raw said there was no immediate plan to increase that amount but it would be reviewed during the year.

She also said the company has suspended a pre-feasibility study of Pascua-Lama, an open pit gold, silver and copper mine in Chile, which regulators ordered permanently closed last year following court battles about environmental concerns.

Last year, Barrick announced the Shandong Gold Group, its joint partner in the Veladero mine in Argentina, would help move the Pascua-Lama project forward but Barrick President Kelvin Dushnisky said it is still in a holding pattern.

"It's not our priority for 2018," Raw said.

He said the company is focused on Nevada, where its Cortez and Goldstrike properties produced 2.3 million ounces of gold last year — about half of its production. Now, it has identified a new area called Fourmile that it believes is geologically similar to Goldstrike and contains high grade gold deposits. 

"Nevada remains a key area of focus for our drill exploration program," said Dushnisky.

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