DBRS Confirms Barrick Gold Corporation’s Issuer Rating at BBB (low) and Removes Under Review – Developing Implications Status; Trend Positive

DBRS Limited (DBRS) confirmed the Issuer Rating of Barrick Gold Corporation (Barrick or the Company) at BBB (low) with a Positive trend. With this confirmation, DBRS has removed the Company’s status of Under Review with Developing Implications, under which it was initially placed on September 26, 2018. The actions noted above are as a result of the successful completion of the merger with Randgold Resources Limited (Randgold) (the Merger). The Merger was credit friendly in that Barrick issued common equity to the Randgold shareholders while adding minimal debt ($31 million) to Barrick’s balance sheet. While the addition of Randgold’s operations means approximately one quarter of the Company’s gold production now originates in Africa, resulting in higher political risk, Barrick’s business risk profile remains strong for the rating.

The Positive trend is, in part, based on the agreement between Barrick and Newmont Goldcorp Corporation to combine their assets in the state of Nevada to form the Nevada Joint Venture (Nevada JV), which is expected to be finalized by the end of Q2 2019. This asset would become the largest gold mining operation in the world with Barrick owning 61.5% and becoming the operator. Additionally, Barrick’s key credit metrics have strengthened with the Merger and were in the BBB category for the last twelve months ending March 31, 2019 (LTM ending March 31, 2019), and are expected to improve further in 2019 based on the Bloomberg consensus 2019 gold price forecast of $1,315 per ounce (as of May 22, 2019).

Prior to the Merger, Barrick has been: (1) divesting non-strategic assets, (2) reducing debt, (3) significantly cutting dividends (in 2013 and 2015) and (4) reducing capex to alleviate free cash flow deficits in order to mitigate financial deterioration over the last few years. Further, management has indicated that the divestiture of non-strategic assets will continue and could raise as much as $1.5 billion this year and that a portion of the proceeds could be used to further reduce debt, which stood at $5.8 billion as at March 31, 2019. Barrick had strong liquidity as of March 31, 2019, with $2.2 billion in cash and $3.0 billion in undrawn credit availability. Based on the Bloomberg-consensus estimates (as at May 22, 2019) for progressively higher gold prices from 2020 to 2022, DBRS expects the Company will continue to generate positive free cash flow over the near term, a portion of which could be used for further debt reduction. If the Merger results in the expected improved financial performance and/or the Nevada JV transaction closes successfully and demonstrates the expected synergies and positive impact on operating costs, or there is material future debt reduction, then a positive rating action could result. Conversely, if gold prices are materially below the Bloomberg-consensus estimates in the near term (thereby depressing EBITDA and cash flow), 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 (September 2018), which can be found on dbrs.com under Methodologies & Criteria.

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 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.

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

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