Barrick Gold ABX said that it has chalked out a 'scenario planning' to determine appropriate actions in case gold prices tumble to as low as $900 an ounce. The gold mining giant has taken significant actions to cut costs, improve productivity and boost free cash flows in anticipation of a possibly weaker gold pricing environment in the back half of 2015.  

Barrick noted that actions under the scenario planning may include adjustment of life-of-mine plans to drive up short-term free cash flow, deferral of mine stripping activities, headcount reductions, shutdown or divestment of assets that do not meet capital allocation plans, reduction of mining rates and further spending cuts.
    
While the company does not expect gold prices to further slump to $900 an ounce, it would take appropriate measures to deal with that situation, if eventually happens. Barrick also added that, based on the actions it has already taken so far, it expects all of its mines to be cash flow positive at $1,100 an ounce gold price level.

Gold prices took a tumble last month, wreaking havoc on producers of the metal. Prices for the yellow metal plummeted to as low as $1,080 an ounce, their lowest level in more than five years as the U.S. dollar strengthened amid expectations of an interest rate hike by the Federal Reserve.

Bullion suffered a heavy beating as traders fret over the prospect of a hike in interest rate as a raft of strong economic data signal that the U.S. economy is gaining momentum. Crashing gold prices also pulled down the share prices of gold mining stocks. Barrick saw its shares decimate roughly 35% last month due to the gold rout.

A depressed gold pricing environment and still soft global economic conditions remain concerns for Barrick. The company’s average realized gold prices fell roughly 8% year over year in the second quarter of 2015, hurting its revenues. Barrick has decided to slash its quarterly dividend by 60% in an effort to beef up financial flexibility and cope with the gold price slump.

Barrick, however, is making a significant progress with its cost and efficiency improvement programs. The company’s initiatives including overhead expenses reduction and portfolio optimization are expected to generate meaningful cost savings. It is aiming to cut as much as $2 billion in expenses by end-2016.

Barrick has implemented a simplified operating model which is expected to increase efficiency, maximize free cash flows and contribute to cost reduction. It expects to realize $50 million in savings in 2015 through lower general and administrative costs and overhead expenses, further increasing to $90 million in 2016. Moreover, the company also remains committed to cut mining costs with all-in sustaining costs for 2015 are now expected to be $840-$880 per ounce, down from $860-$895 per ounce expected earlier.

Barrick and other gold miners including Newmont NEM and Goldcorp GG are trimming costs and shedding non-core assets to optimize their portfolio as they grapple with lower prices of the metal. Moreover, a steep fall in prices has led to multibillion dollar write-downs by these miners.

Barrick has announced $2.45 billion in assets sale and joint ventures so far. The company, last month, agreed to sell a 50% interest in the Zaldívar copper mine in Chile to Antofagasta Plc. Barrick has also cut a gold and silver streaming agreement with Royal Gold RGLD for production linked to the former’s 60% interest in the Pueblo Viejo mine in the Dominican Republic. Barrick will get upfront cash payment of $610 million and continuing cash payments for gold and silver delivered under the deal.

Barrick continues to aggressively pursue divestments as it plans to start formal process to sell more non-core assets including Bald Mountain, Round Mountain (50% interest) and Spring Valley (70% interest) over the next several weeks.

Barrick is looking to cut debt by $3 billion by the end of 2015 using cash flows and proceeds from non-strategic assets sale. The company has a debt-laden balance sheet. Its total debt was roughly $12.8 billion at the end of the second quarter, roughly six-times of its cash position.

Divestments, joint ventures and streaming agreements coupled with the retirement of $250 million in debt during first-half 2015 collectively represent 90% of Barrick’s debt reduction goal for this year. As such, the company seems to be on track to achieve its debt target in the current low gold pricing environment.

Barrick is a Zacks Rank #3 (Hold) stock.

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