DBRS Confirms Barrick Gold Corporation’s Issuer Rating at BBB (low), Changes Trend to Positive

DBRS Limited (DBRS) confirmed the Issuer Rating of Barrick Gold Corporation (Barrick or the Company) at BBB (low) and changed the trend to Positive. The trend change is a result of the significant progress that Barrick has made over the past two years in reducing its debt burden, which resulted in a moderate improvement in the Company’s credit metrics for the last 12 months (LTM) ended September 30, 2017, compared with 2016 for the same period. The improvement in the metrics is expected to continue in 2018 as a result of slightly higher gold price forecasts compared with 2017 (Bloomberg consensus as at January 2, 2018) and management’s goal of a further $1.4 billion in debt reduction this year, bringing Barrick’s total debt down to approximately $5 billion. This year’s debt reduction is expected to be completed using free cash flow and cash on hand as the Company’s asset divestiture program has been largely concluded. Moreover, despite the challenges of a rising interest rate 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.

Gold prices continued to improve in 2017 with a parallel improvement in Barrick’s adjusted operating cash flow-to-debt metric for the LTM ended September 30, 2017, to levels seen prior to 2014. The improvement in Barrick’s credit metrics has also been supported by copper prices that were 27% higher in the LTM ended September 30, 2017, compared with the LTM ended September 30, 2016. While Barrick’s approximate $3.5 billion in asset divestitures (since mid-2015) reduced debt levels, these asset sales also resulted in 2017 gold production of 5.3 million ounces that was approximately 4% lower compared with 2016, albeit resulting in more profitable ounces produced.

DBRS acknowledges that the Company took several measures to mitigate financial deterioration over the last number of years, including significantly cutting dividends (in 2013 and 2015), reducing capital expenditure to alleviate free cash flow deficits and selling non-core assets to maintain liquidity and reduce debt. In the LTM ended September 30, 2017, DBRS estimates that the Company generated positive free cash flow of $698 million, extending the positive free cash flow generation that began in 2015. Based on the Bloomberg-consensus estimates for higher gold prices in 2018 (as at January 2, 2018), DBRS also expects the Company will 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 from $6.4 billion at the end of Q3 2017 to below $5 billion by the end of 2018, which, if achieved, could result in a positive rating action from DBRS. Conversely, if gold prices are materially below the Bloomberg-consensus estimates this year, then a negative rating action could result.

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

The principal methodology is Rating Companies in the Mining Industry (August 2017), which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

This rating is no longer endorsed by DBRS Ratings Limited for use in the European Union.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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