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FINANCIAL RISK MANAGEMENT | 12 Months Ended
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Dec. 31, 2017
Financial Instruments [Abstract] |
FINANCIAL RISK MANAGEMENT | FINANCIAL RISK MANAGEMENT Our financial instruments are comprised of financial liabilities and financial assets. Our principal financial liabilities, other than derivatives, comprise accounts payable and debt. The main purpose of these financial instruments is to manage short-term cash flow and raise funds for our capital expenditure program. Our principal financial assets, other than derivative instruments, are cash and equivalents and accounts receivable, which arise directly from our operations. In the normal course of business, we use derivative instruments to mitigate exposure to various financial risks. We manage our exposure to key financial risks in accordance with our financial risk management policy. The objective of the policy is to support the delivery of our financial targets while protecting future financial security. The main risks that could adversely affect our financial assets, liabilities or future cash flows are as follows:
a. | Market risk, including commodity price risk, foreign currency and interest rate risk;
b. | Credit risk;
c. | Liquidity risk; and
d. | Capital risk management.
Management designs strategies for managing each of these risks, which are summarized below. Our senior management oversees the management of financial risks. Our senior management ensures that our financial risk-taking activities are governed by policies and procedures and that financial risks are identified, measured and managed in accordance with our policies and our risk appetite. All derivative activities for risk management purposes are carried out by the appropriate personnel. a) Market Risk Market risk is the risk that changes in market factors, such as commodity prices, foreign exchange rates or interest rates, will affect the value of our financial instruments. We manage market risk by either accepting it or mitigating it through the use of derivatives and other economic hedging strategies. Commodity Price Risk Gold and Copper We sell our gold and copper production in the world market. The market prices of gold and copper are the primary drivers of our profitability and ability to generate both operating and free cash flow. Our corporate treasury group implements hedging strategies on an opportunistic basis to protect us from downside price risk on our gold and copper production. We have 60 million pounds of copper positions outstanding at December 31, 2017. Acacia has 105 thousand ounces of gold positions outstanding at December 31, 2017 and purchased an additional 120 thousand ounces of gold put options subsequent to year end. Our remaining gold and copper production is subject to market prices. Fuel On average we consume approximately 4 million barrels of diesel fuel annually across all our mines. Diesel fuel is refined from crude oil and is therefore subject to the same price volatility affecting crude oil prices. Therefore, volatility in crude oil prices has a significant direct and indirect impact on our production costs. To mitigate this volatility, we employ a strategy of using financial contracts to hedge our exposure to oil prices. Foreign Currency Risk The functional and reporting currency for all of our operating segments is the US dollar and we report our results using the US dollar. The majority of our operating and capital expenditures are denominated and settled in US dollars. We have exposure to the Australian dollar and Canadian dollar through a combination of mine operating costs and general and administrative costs; and to the Papua New Guinea kina, Peruvian sol, Chilean peso, Argentinean peso, Dominican Republic peso and Zambian kwacha through mine operating costs. Consequently, fluctuations in the US dollar exchange rate against these currencies increase the volatility of cost of sales, general and administrative costs and overall net earnings, when translated into US dollars. Interest Rate Risk Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instruments will fluctuate due to changes in market interest rates. Currently, our interest rate exposure mainly relates to interest receipts on our cash balances ($2.2 billion at the end of the year); the mark-to-market value of derivative instruments; the fair value and ongoing payments under US dollar interest-rate swaps; and to the interest payments on our variable-rate debt ($0.1 billion at December 31, 2017). The effect on net earnings and equity of a 1% change in the interest rate of our financial assets and liabilities as at December 31, is approximately $10 million (2016: $13 million). b) Credit Risk Credit risk is the risk that a third party might fail to fulfill its performance obligations under the terms of a financial instrument. Credit risk arises from cash and equivalents, trade and other receivables as well as derivative assets. For cash and equivalents and trade and other receivables, credit risk exposure equals the carrying amount on the balance sheet, net of any overdraft positions. To mitigate our inherent exposure to credit risk we maintain policies to limit the concentration of credit risk, review counterparty creditworthiness on a monthly basis, and ensure liquidity of available funds. We also invest our cash and equivalents in highly rated financial institutions, primarily within the United States and other investment grade countries, which are countries rated BBB- or higher by S&P and include Canada, Chile, Australia and Peru. Furthermore, we sell our gold and copper production into the world market and to private customers with strong credit ratings. Historically customer defaults have not had a significant impact on our operating results or financial position. For derivatives with a positive fair value, we are exposed to credit risk equal to the carrying value. When the fair value of a derivative is negative, we assume no credit risk. We mitigate credit risk on derivatives by:
• | Entering into derivatives with high credit-quality counterparties;
• | Limiting the amount of net exposure with each counterparty; and
• | Monitoring the financial condition of counterparties on a regular basis.
The Company’s maximum exposure to credit risk at the reporting date is the carrying value of each of the financial assets disclosed as follows:
| As at December 31, 2017 |  | As at December 31, 2016 |
Cash and equivalents |  | $2,234 |  |  | $2,389 |
Accounts receivable | 239 |  | 249 |
Net derivative assets by counterparty | 2 |  | 1 |
|  | $2,475 |  |  | $2,639 |
c) Liquidity Risk Liquidity risk is the risk of loss from not having access to sufficient funds to meet both expected and unexpected cash demands. We manage our exposure to liquidity risk by maintaining cash reserves, access to undrawn credit facilities and access to public debt markets, by staggering the maturities of outstanding debt instruments to mitigate refinancing risk and by monitoring of forecasted and actual cash flows. Details of the undrawn credit facility are included in note 25. Our capital structure comprises a mix of debt and shareholders’ equity. As at December 31, 2017, our total debt was $6.4 billion (debt net of cash and equivalents was $4.2 billion) compared to total debt as at December 31, 2016 of $7.9 billion (debt net of cash and equivalents was $5.5 billion). As part of our capital allocation strategy, we are constantly evaluating our capital expenditures and making reductions where the risk-adjusted returns do not justify the investment. Our primary source of liquidity is our operating cash flow. Other options to enhance liquidity include drawing the $4.0 billion available under our Credit Facility (subject to compliance with covenants and the making of certain representations and warranties, this facility is available for drawdown as a source of financing), further asset sales and issuances of debt or equity securities in the public markets or to private investors, which could be undertaken for liquidity enhancement and/or in connection with establishing a strategic partnership. Many factors, including, but not limited to, general market conditions and then prevailing metals prices could impact our ability to issue securities on acceptable terms, as could our credit ratings. Moody’s and S&P rate our long-term debt Baa3 and BBB-, respectively. Changes in our ratings could affect the trading prices of our securities and our cost of capital. If we were to borrow under our Credit Facility, the applicable interest rate on the amounts borrowed would be based, in part, on our credit ratings at the time. The key financial covenant, which was amended in the fourth quarter 2015, in the Credit Facility (undrawn as at December 31, 2017) requires Barrick to maintain a net debt to total capitalization ratio, as defined in the agreement, of 0.60:1 or lower (Barrick’s net debt to total capitalization ratio was 0.27:1 as at December 31, 2017). The following table outlines the expected maturity of our significant financial assets and liabilities into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. As the amounts presented in the table are the contractual undiscounted cash flows, these balances may not agree with the amounts disclosed in the balance sheet.
As at December 31, 2017 |  |  |  |  |
(in $ millions) | Less than 1 year |  | 1 to 3 years |  | 3 to 5 years |  | Over 5 years |  | Total |
Cash and equivalents |  | $2,234 |  |  | $— |  |  | $— |  |  | $— |  |  | $2,234 |
Accounts receivable | 239 |  | — |  | — |  | — |  | 239 |
Derivative assets | 2 |  | 1 |  | — |  | — |  | 3 |
Trade and other payables | 1,059 |  | — |  | — |  | — |  | 1,059 |
Debt | 59 |  | 311 |  | 975 |  | 5,111 |  | 6,456 |
Derivative liabilities | 30 |  | 2 |  | — |  | — |  | 32 |
Other liabilities | 30 |  | 231 |  | 64 |  | 186 |  | 511 |
As at December 31, 2016 |  |  |  |  |
(in $ millions) | Less than 1 year |  | 1 to 3 years |  | 3 to 5 years |  | Over 5 years |  | Total |
Cash and equivalents |  | $2,389 |  |  | $— |  |  | $— |  |  | $— |  |  | $2,389 |
Accounts receivable | 249 |  | — |  | — |  | — |  | 249 |
Derivative assets | 1 |  | 1 |  | — |  | — |  | 2 |
Trade and other payables | 1,084 |  | — |  | — |  | — |  | 1,084 |
Debt | 143 |  | 533 |  | 997 |  | 6,316 |  | 7,989 |
Derivative liabilities | 51 |  | 27 |  | — |  | — |  | 78 |
Other liabilities | 42 |  | 51 |  | 3 |  | 120 |  | 216 |
d) Capital Risk Management Our objective when managing capital is to provide value for shareholders by maintaining an optimal short-term and long-term capital structure in order to reduce the overall cost of capital while preserving our ability to continue as a going concern. Our capital management objectives are to safeguard our ability to support our operating requirements on an ongoing basis, continue the development and exploration of our mineral properties and support any expansion plans. Our objectives are also to ensure that we maintain a strong balance sheet and optimize the use of debt and equity to support our business and provide financial flexibility in order to maximize shareholder value. We define capital as total debt less cash and equivalents and it is managed by management subject to approved policies and limits by the Board of Directors. We have no significant financial covenants or capital requirements with our lenders or other parties other than what is discussed under liquidity risk in note 28.

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