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Morningstar | Barrick Gold on Track to Hit Full-Year 2018 Guidance After Improved 3Q Results

Barrick Gold is anchored by a portfolio of five large mines that constitute roughly 70% of production. Individually, these mines produce as much as some midtier miners' entire operations. While the company's entire portfolio operates at all-in sustaining costs below the industry average, Barrick's core mines tend to be even lower cost.In recent years, Barrick has been focused on strengthening its balance sheet. The company deployed heavy amounts of capital at what turned out to be problematic projects, saddling it with a large amount of debt. From 2010 to 2014, debt roughly doubled to more than $13 billion, driven by the approximately $7 billion acquisition of Equinox Minerals in 2011 and the continually escalating capital costs at Pascua-Lama, whose most recent capital cost was estimated at roughly $10 billion. Furthermore, the Equinox assets and Pascua-Lama are unlikely to generate the cash flow originally anticipated. In 2015 and 2016, Barrick executed noncore asset sales, royalty streams, and other transactions to help drive leverage down to a more manageable level, raising more than $5 billion for debt reduction. The company reduced debt by an additional $1.5 billion in 2017.Our long-term nominal gold price forecast is $1,300 per ounce in 2020. Investment demand will weaken further as the Federal Reserve raises interest rates, weighing on near-term gold prices. However, Chinese and Indian jewelry demand should eventually fill the gap left by investment demand. Strong preferences for gold in these countries drive high income elasticity, and rising incomes should result in robust jewelry demand growth over the next few years. Strong demand will lead to a production shortfall, requiring a higher incentive price to encourage additional mine production. However, cost deflation caps the potential upside from an otherwise strong demand story. Depreciation in producer currencies, lower oil prices, and general mine cost deflation stemming from the end of the Chinese-driven commodity boom have helped drive cost reductions, lowering the marginal cost of production.