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Morningstar | Barrick Gold's Acquisition of Randgold Will Help Offset a Weaker Outlook for Legacy Mines

After the 2018 acquisition of Randgold, Barrick Gold holds a large portfolio of mines, with more than 10 mines individually producing 200,000 ounces or more. These mines individually produce as much gold as some midtier miners' entire operations. The acquisition of Randgold looks to be strategically sound, as the addition of its large mines helps offset production declines in Barrick's legacy portfolio with costs at or below the company average.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. The acquisition of Randgold in 2018 added no additional stress to the balance sheet, as it was executed with equity at no premium.Our long-term nominal gold price forecast is $1,300 per ounce in 2020 dollars. In recent years, investment demand weakened as the Federal Reserve raised rates amid the strength of the U.S. economy. This downward pressure on gold prices should soften in the near term, as the U.S. central bank appears to be opting for a more dovish approach due to rising economic uncertainty.On the back of stabilizing investment demand and improving jewelry demand in China, we expect gold prices to reach a nominal price of $1,300 per ounce by 2020.