DBRS Downgrades Barrick Gold Ratings to A (low), Stable, Following Successful Tender for Shares of Equinox Minerals

DBRS has today downgraded the long-term debt ratings of Barrick Gold Corporation and its subsidiaries (Barrick or the Company) to A (low) from “A”, with a Stable trend, following the Company’s announcement that it has successfully tendered for and intends to take up and pay for approximately 83% of the outstanding common shares of copper producer Equinox Minerals Limited (Equinox) at a cost of approximately CAD 5.9 billion. Barrick has extended its offer for Equinox and DBRS believes Barrick will be successful in acquiring all of Equinox for about $7.7 billion. The ratings have thereby been removed from Under Review with Negative Implications, where they were placed on April 25, 2011 (see related press release for further details). Barrick’s Commercial Paper rating is unaffected by the Equinox acquisition and has been confirmed at R-1 (low) with a Stable trend.

Barrick and its wholly-owned subsidiary Barrick North America Finance LLC (Barrick NA Finance) have issued $4.0 billion in term debt to finance, along with cash on hand and existing credit facilities, the acquisition of Equinox. DBRS considers that the successful acquisition of Equinox will broaden Barrick’s copper diversification but also increase its political risk profile, as Equinox’s major assets are in Zambia and Saudi Arabia. The acquisition will also weaken the Company’s credit metrics due to the additional debt burden.

Equinox’s key assets include the 100%-owned Lumwana mine, currently producing copper and gold in Zambia, and the 100%-owned Jabal Sayid copper mine development in Saudi Arabia, expected to start production in 2012. Equinox’s two key properties are not expected to be low-cost producers and currently have only sufficient proven and probable reserves defined to support moderate-length mine lives (but with good exploration potential). In addition, these properties will potentially require significant added investment to meet original design targets and to expand operations as is envisioned.

DBRS expects that the acquisition of Equinox, if completed as currently contemplated, will on a pro forma basis increase Barrick’s gross debt leverage from 24.4% at December 31, 2010, to approximately 36.9%, assuming $5 billion of the cost is financed by new debt and draws under existing credit facilities and the remainder by the Company’s existing cash resources. In addition, Barrick’s EBITDA gross interest coverage would be expected to drop from 14 times in 2010 to approximately 9.0 times.

Although DRBS considers the Equinox acquisition as potentially expensive and adding to the political risk of Barrick’s operations, Barrick, as the largest gold producer in the world, has a solid business profile, as well as strong financial metrics due to low production costs and the currently high prices for gold and copper, its two main products. DBRS views the added debt burden brought on by the Equinox transaction as manageable by Barrick and expects that Equinox’s contribution to earnings and cash flow will very much be a function of copper prices over the next few years.

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.