Moody's Raises Outlook on Barrick Gold (ABX) to Stable; Ratings Affirmed

August 19, 2016 11:51 AM EDT

Get access to the best calls on Wall Street with StreetInsider.com's Ratings Insider Elite. Get your Free Trial here.

Moody's Investors Service ("Moody's") affirmed the senior unsecured ratings of Barrick Gold Corporation (NYSE: ABX) and all guaranteed rated subsidiaries at Baa3. At the same time, Moody's revised the rating outlook to stable from negative.

"The outlook revision to stable reflects Barrick's reducing leverage and management's commitment to further reduce debt", said Jamie Koutsoukis, Moody's Vice President, Senior Analyst.

Outlook Actions:

..Issuer: Barrick (PD) Australia Finance Pty Ltd

....Outlook, Changed To Stable From Negative

..Issuer: Barrick Gold Corporation

....Outlook, Changed To Stable From Negative

..Issuer: Barrick Gold Finance Company

....Outlook, Changed To Stable From Negative

..Issuer: Barrick International Bank Corp.

....Outlook, Changed To Stable From Negative

..Issuer: Barrick North America Finance LLC

....Outlook, Changed To Stable From Negative

..Issuer: Placer Dome Inc.

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: Barrick (PD) Australia Finance Pty Ltd

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Barrick Gold Corporation

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Barrick Gold Finance Company

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Barrick International Bank Corp.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Barrick North America Finance LLC

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Placer Dome Inc.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

RATINGS RATIONALE

Barrick's Baa3 rating is underpinned by its large scale, diverse and low-cost gold assets, sizeable copper operations, favorable geopolitical risks and excellent liquidity. Moody's expects Barrick will achieve its debt reduction target of $2 billion in 2016, of which $968 million has already been achieved through June/16, following a $3 billion reduction in 2015. Moody's expects Barrick's adjusted financial leverage will be around 2.5x at the end of 2016 (2.8x at June/16), assuming a gold price of $1250/oz, with further reductions possible in 2017 and beyond.

Barrick's credit metrics have markedly improved, with the company having reduced adjusted debt to $9.2 billion at June/16 from $13.2 billion at Dec/14 and adjusted leverage improving to 2.8x at June/16 from 3.4x at Dec/14. Barrick continues to limit capital expenditures ($1.3 billion LTM to June/16 from $2.4 billion in 2014 and $5.2 billion in 2013) and it has sold mines as it focuses on debt and leverage reduction. The company expects production will drop to 4.6 million-5.1 million attributable ounces by 2018 from 6.1 million attributable ounces in 2015. As existing mines are depleted, absent mine expansions or the development of new mines, we expect Barrick's production to decrease further, resulting in a reduction of cash flow and an increase in leverage unless debt continues to be reduced. We also presume that Barrick's commitment to reduce debt further, towards $5 billion from $9.2 billion at June/16, will remain the more important priority compared to material new mine spending, although some of both may occur.

Barrick's liquidity is excellent, which provides significant flexibility to maneuver through gold price volatility. Cash of $2.4 billion and an undrawn $4 billion revolver ($3.66 billion expires in January 2021 with the remaining amount expiring in January 2020) will be supplemented by expected positive free cash flow generation of up to $1 billion at our US$1250/oz gold price range over the four quarters ending June/17. Maturities are minimal before 2018 with less than $150 million in debt due before that time. The key financial covenant in its credit facility requires Barrick to maintain a net debt to total capitalization ratio of less than 60%. Barrick's net debt to total capitalization was 40% as at June 30, 2016 and we expect ample headroom over the next year.

The stable outlook reflects Barrick's ability to continue to be free cash flow generative at our assumed gold price in the range of $1250/oz in each of 2016 and 2017, which will allow the company to further reduce debt and provide it the ability to invest in its assets.

An upgrade to Baa2 could occur if Barrick articulates a strategy for the period following its current focus on selling non-core assets and reducing debt, and that strategy outlines plans for future production levels, be that continued reduction, stabilization or growth, and the strategy incorporates a sustainable leverage below 2.5x (adjusted debt/EBITDA of 2.8x at June/16) and cash from operations less dividends/debt around 30% (31% at June/16), in our opinion.

Barrick's rating could be downgraded to Ba1 if Debt/ EBITDA appeared likely to be sustained above 3.0x and cash from operations less dividends/ debt sustained below 20%.



Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In






Related Categories

Credit Ratings

Related Entities

Moody's Investors Service

Add Your Comment