DBRS Downgrades Barrick Gold Corporation Ratings to BBB (low), Stable Trend

DBRS Limited (DBRS) has today downgraded the Issuer Rating of Barrick Gold Corporation (Barrick or the Company) and all of its other long-term ratings to BBB (low) from BBB. The trends of all ratings have also been changed to Stable from Negative. The rating actions reflect DBRS's view that the Company's credit metrics continue to weaken to a level that is no longer commensurate with the BBB rating level and are not likely to materially recover in the near term, largely due to weak gold prices in 2015 and relatively flat gold production. DBRS has concurrently withdrawn certain Company ratings, at DBRS’s discretion, as outlined in the table at the end of this press release.

The Stable trend reflects DBRS's expectation that (1) Barrick continues to maintain a solid liquidity profile, (2) Barrick's $3.0 billion debt reduction plan has been on track and debt levels are not likely to increase as free cash flow deficits are expected to be minimal or eliminated and (3) Barrick will take the necessary steps to minimize further deterioration of its credit metrics over the near to medium term with significant reductions in operating costs, capital expenditures (capex) and dividends.

Gold prices have continued to decline in 2015 and are not expected to recover in the near term, given the challenging market conditions. In addition, copper prices have also declined significantly, mainly due to weak demand from China. Further, due to the recent asset divestitures, Barrick’s gold production levels are expected to remain flat (2015 guidance of 6.1 million ounces (oz) to 6.4 million oz for the year). As a result, DBRS does not expect Barrick’s credit metrics to be restored to 2013 levels over the near to medium term. DBRS acknowledges that the Company’s plan to reduce the debt by $3.0 billion by the end of 2015 has been on track, given asset divestitures. When the debt reduction is achieved, credit metrics should improve modestly. However, the expected improvement of credit metrics will not be sufficient to maintain the BBB rating.

Over the past few years, Barrick has generated large free cash flow deficits as a result of weakening gold prices, which, combined with large capex and past acquisitions, have led to higher debt levels. Further, the Company’s gold production has decreased materially since 2013 despite substantial capex, due mainly to lower grades, asset divestitures, and project delays and suspensions (i.e., Pascua-Lama, Chile).

DBRS acknowledges that the Company has taken several measures to mitigate recent credit deteriorations, including (1) significantly cutting dividends and reducing capex to alleviate free cash flow deficits and (2) selling non-core assets to maintain liquidity, which currently remains solid, and for potential debt reduction. As a result, net free cash flow deficits are expected to be substantially reduced or eliminated and should help to stabilize debt levels over the medium term.

Despite the challenging environment, Barrick’s current investment-grade rating is supported by solid liquidity, its large size and scale as the world’s largest gold producer, below industry-median costs, its diversified gold mine operations in eight countries, supplemented by copper production and the world’s largest proven and probable gold reserve.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Companies in the Mining Industry (September 2014), which can be found on our website under Methodologies.