DBRS Confirms Barrick Gold Corporation’s Ratings at A (low) with Stable Trend

DBRS has today confirmed Barrick Gold Corporation’s (Barrick or the Company) and related companies’ long-term debt ratings at A (low) and the R-1 (low) rating on its Commercial Paper. The trend for each rating is Stable. Barrick is the world’s largest gold producer with low-cost operations and an above-average reserve life at its gold mines and is also a growing copper producer

In June 2011, DBRS downgraded Barrick’s long-term debt ratings following the acquisition of Equinox Minerals Limited (Equinox), which broadened Barrick’s copper diversification but also increased its political risk profile, added significantly to debt and degraded the cost competitiveness of the Company’s operations on average. Nonetheless, Barrick’s gold operations tend to lead the industry in terms of output and competitiveness of average cost.

Barrick’s net income before non-recurring items has grown rapidly over the last five years driven primarily by higher gold and copper prices. During the same period, gold sales volumes have decreased slightly and copper sales increased only in 2011 following the Equinox acquisition.

Gold operations generated a record $7.9 billion in EBITDA in 2011 (or 90% of total Company divisional EBITDA before cost allocated to projects and corporate costs) on consolidated sales of 7.8 million ounces with a very profitable EBITDA margin of 63%. Copper operations generated 9% of EBITDA at a margin of 48%, lower than gold but still solid due to high average copper prices during the year. Record 2011 operating cash flow supported record capital expenditures and dividends resulting in a modest deficit of net free cash flow; however, the Equinox purchase comprised the bulk of an $8.0 billion net debt increase.

Barrick’s traditionally strong financial metrics deteriorated somewhat in 2011 with the $7.5 billion, all-cash acquisition of Equinox, which led to higher debt levels and poorer coverage metrics despite record operating cash flows; nonetheless, these metrics are still adequate for the rating.

With lower copper and gold prices expected in 2012, ongoing cost inflation and a robust expansion program, the Company will have to be judicious in its outflows to restore its balance sheet strength to historical levels.

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

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