DBRS Places Barrick Gold Corporation Under Review – Negative Following Offer For Equinox Minerals Limited

DBRS has today placed the “A” Senior Unsecured Debt ratings of Barrick Gold Corporation and its subsidiaries (Barrick or the Company) Under Review with Negative Implications following the Company’s announcement that it will make an approximately CAD$7.3 billion, all-cash offer for copper producer Equinox Minerals Limited (Equinox). Barrick’s Commercial Paper rating is unaffected and remains at R-1 (low) with a Stable trend. Equinox is also currently being pursued by Minmetals Resources Limited, which announced on April 3, 2011, that it intended to make its own all-cash offer to acquire all of the outstanding common shares of Equinox.

Although the successful acquisition of Equinox by Barrick would broaden its copper diversification, the Company has indicated that it would partially debt finance the transaction, adding to leverage and financial risk. In addition, Equinox’s two key properties are not expected to be low-cost producers and currently have only sufficient reserves defined to support moderate length mine lives (but with good exploration potential). Given the impact of a successful, partially debt-financed Equinox acquisition on Barrick’s financial metrics, the need to clarify the potential long-term value of the deal to Barrick and the uncertainty over a potential final purchase cost, DBRS is placing the Senior Unsecured Debt ratings of Barrick Under Review with Negative Implications, potentially leading to a one-notch downgrade of the Company’s Senior Unsecured Debt ratings if the acquisition is completed.

Barrick has entered into a $5.0 billion financing arrangement for the transaction comprised of an underwritten bridge loan and a revolving credit facility. In addition, the Company had approximately $4.0 billion in cash and $1.5 billion in unutilized credit facilities at December 31, 2010. Equinox’s December 31, 2010 balance sheet indicates approximately $419 million in debt and financial lease obligations, as well as $319 million in available cash and cash equivalent resources. DBRS expects that if completed as currently contemplated, the acquisition of Equinox will, on a pro forma basis, increase Barrick’s gross debt leverage from 24.4% at December 31, 2010 to 36.9% assuming $5 billion of the cost is financed by new debt and the remainder by cash resources. In addition, Barrick’s EBITDA gross interest coverage would be expected to drop from 14 times in 2010 to approximately 9 times.

Barrick has indicated that it has entered into a support agreement with Equinox for Barrick to acquire all of the issued and outstanding common shares of Equinox for CAD $8.15 per Equinox share in cash, or a total of approximately CAD $7.3 billion or approximately $7.7 billion. The Board of Directors of Equinox has approved entering into the support agreement and will recommend that Equinox shareholders tender to the offer. Barrick has indicated that the offer will be conditional upon, among other things, valid acceptances of the offer in respect of shares representing (together with shares owned by Barrick) not less than 66 2/3% of the Equinox shares on a fully diluted basis. In addition, the offer will be subject to certain customary conditions, including receipt of the relevant regulatory approvals and the absence of a material adverse change with respect to Equinox.

Equinox’s key assets include the 100% owned Lumwana mine currently producing copper and gold in Zambia and the 70% owned Jabal Sayid copper mine development in Saudi Arabia, expected to start production in 2012.

Barrick has a solid business profile as the largest gold producer in the world as well as strong financial metrics due to low production costs and high prices for gold and copper, its two main products. The Company’s gold production in 2010 was 7.8 million ounces, up from a near-term low of 7.4 million ounces in 2009; with further growth it is expected to reach 9.0 million ounces within the next five years as significant investments in mine expansions and new mine developments take hold. A successful acquisition of Equinox would strengthen the Company’s diversification in copper but would add debt to an otherwise strong balance sheet.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Mining, which can be found on our website under Methodologies.