DBRS Updates Report on Barrick Gold Corporation

DBRS has today updated Barrick Gold Corporation’s (Barrick or the Company) report following the recent downgrade of Barrick’s ratings from BBB (high) to BBB. The trend remains Negative (see press release dated March 4, 2014).

The March rating actions reflected the inability of Barrick to staunch its negative net free cash flow generation since 2012 in an environment of weakening gold prices, which has led to a marked deterioration of its credit metrics. In addition, concern over Barrick’s circumstances include (1) poor project execution, including the need to stop its important Pascua-Lama project and extended delays in the start-up of the Jabal Sayid mine; (2) higher debt levels largely as a result of the acquisition of Equinox Minerals in 2011; (3) significant management changes; and (4) higher cost structure over the past several years despite improvement over the past 18 months. As a result, DBRS continues to maintain a Negative trend, as these concerns persist even though Barrick remains the largest gold producer in the world with below-industry median costs.

To resolve the Negative trend, DBRS expects the Company to return net free cash flow to sustainably positive levels and to begin a reversal of the deterioration of its key credit metrics. Failure to do so over the next year can be expected to lead to negative rating action.

DBRS acknowledges that the Company has taken several measures to help mitigate recent credit deterioration, including (1) the issuance of $2.9 billion equity in 2013 used to repay near-term debt; (2) asset sales valued at $522 million in 2013 and additional divestitures expected in the future; (3) cut in dividends from $750 million in 2012 to an estimated $230 million in 2014; and (4) the reduction in capex, including the suspension of Pascua-Lama construction.

Despite the challenging environment, Barrick’s current investment-grade rating is supported by its position as the world’s largest gold producer, with below-industry median costs, many gold mine operations in eight countries, supplement by copper production and the world’s largest proven and probable reserve.

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