Morgan Stanley: Barrick Gold Must Cut Debt Before Executing Its 'Back To The Future' Plan

In a report published Sunday, Morgan Stanley analyst Brad Humphrey commented that Barrick Gold Corporation's (NYSE: ABX) $3 billion debt reduction plan was "ambitious" when first introduced in late 2014, but accomplishing it by the year-end deadline will require "significantly higher" metal prices.

"At current metal prices, the near-term deadline suggest to us that there will need to be additional ‘levers' including further asset sales (in an environment where sales have been at discounts), a meaningful equity issue and/or a more more transformational transaction," Humphrey wrote.

Nevertheless, the analyst added the "ship appears pointed in the right direct" as the company is focusing on core operations in mining friendly regions. The analyst also noted that the 10 percent to 15 percent return on invested capital hurdle rate is "welcome" given the company's history of capital allocation, although it remains a bit "ambiguous" without a price deck attached.

Humphrey further argued that if spot prices prevail in 2015, the company would need to divest its interest in KCGM and ACA (along with selling Porgera and Cowal) while also issuing approximately $1 billion in equity.

Bottom line, the analyst suggested investors remain cautious on the company's plans that depend on favorable metal prices and that its year-end targets may prove to be "aggressive."

Shares are Equal-weight rated with a $13.50 price target.