DBRS Confirms Barrick’s Rating at BBB (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating of Barrick Gold Corporation (Barrick or the Company) at BBB (low) with a Stable trend. DBRS notes that the Company’s credit metrics have largely stabilized, but mostly remain at weak levels that are no longer commensurate with the BBB rating category. The Bloomberg consensus gold price estimates for 2017-2019 (as of October 31, 2016) are supportive of a gradual improvement in the Company’s credit metrics based on the divestiture of its higher cost mines, reduction of debt and attractive brownfield expansion potential. Moreover, 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, cash costs in the lower half of the industry cost curve, its globally diversified mining operations and the world’s largest proven and probable gold reserves. The Stable trend reflect DBRS’s expectation that Barrick continues to maintain a solid liquidity profile, remains on track with its $2.0 billion 2016 debt-reduction target and will take the necessary steps to minimize further deterioration of its credit metrics over the near to medium term with reductions in operating costs and managing capital expenditures (capex) within the brownfield expansion framework.

After bottoming in late December 2015, gold prices have steadily improved in 2016 with a parallel improvement in Barrick’s adjusted operating cash flow-to-debt metric for the last 12 months to September 30, 2016, similar to levels seen prior to 2014; however, copper prices have posted a less robust recovery this year, up 7.6% year-to-date, mainly because of ongoing weakness in Chinese demand. While Barrick’s approximate $2.6 billion in asset divestitures since mid-2015 has reduced debt levels, the sales have also resulted in 2016 gold production that would be approximately 14% lower at the low end of guidance compared with 2015, albeit resulting in more profitable ounces produced.

DBRS acknowledges that the Company has taken several measures to mitigate recent credit deteriorations, including significantly cutting dividends, reducing capex to alleviate free cash flow deficits and selling non-core assets to maintain liquidity and reduce debt. In 2015, DBRS estimates that the Company generated positive free cash flow of $921 million. As a result of the recovery of gold prices since the beginning of 2016, DBRS also expects that the Company should continue to generate positive free cash flow over the near term. Additionally, this free cash flow should be available for further debt reduction toward management’s goal of reducing total debt to below $5.0 billion over the medium term from $8.5 billion at the end of Q3 2016. DBRS’s sensitivity analysis indicates that an approximate 15% to 20% increase or decrease in the Bloomberg gold price forecasts could result in a future rating action.

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.

The applicable methodology is Rating Companies in the Mining Industry (September 2016), which can be found on our website under Methodologies.

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

This is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer and did not include participation by the issuer or any related third party.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.