Vancouver — Barrick Gold Corp.'s massive mine-building program has prompted one debt rating agency to put the company's ratings under review for a possible downgrade, reflecting the billions that will be poured into the projects.
Moody's Investors Service said Tuesday that it has placed about $500-million (U.S.) of Barrick's long-term debt under review. The senior unsecured debentures currently have an A3 investment grade rating.
In a statement, Moody's said the review would focus on Barrick's mine development plan over the next five years. Barrick is building four new mines and in July said it would also develop the Pascua-Lama deposit, which straddles the border between Chile and Argentina.
The five projects are expected to cost about $2.6-billion over the next five years.
Moody's said it would consider the risks of completing all five mines on time and on budget and would also look at the company's changing geographic risk profile.
Along with Pascua-Lama, Barrick is building the Veladero mine in Argentina, Lagunas Norte in Peru, Cowal in Australia and Tulawaka in Tanzania. Currently, about 60 per cent of its production comes from North American operations.
Moody's said it would also consider the impact of various gold-price scenarios on Barrick's revenue in the light of the company's decision to stop hedging, or selling forward, gold production.
Once a big supporter of hedging strategies, Barrick last year said it would not enter any new hedge contracts and would reduce the amount of gold already committed under existing hedge agreements.
There can be a cost to closing out hedge commitments if the prices set in those agreements do not reflect market conditions. In July, when Barrick announced its second-quarter results, it reported a $26-million “opportunity cost” from selling gold at prices that were below the average spot price during the period.
The gold price has climbed over the past three years and reached 15-year highs in January. London-based consulting firm GFMS said this week it anticipates an average of $407 an ounce for the rest of the year.
Barrick said it reduced its gold position by 850,000 ounces in the second quarter, leaving 84 per cent of its reserves unhedged.
As well as expanding in Latin America and in Africa, Barrick is keeping an eye on Russia, where it acquired an interest last year through an investment in London-listed Highland Gold Mining Ltd. Highland has assets in Russia.
Barrick, along with many other major gold producers, has been named as a potential bidder for the Sukhoi Log deposit in Russia.
Reuters reported Wednesday that the Russian government had decided to put off a tender for the deposit and said the government might limit foreign participation.
Barrick spokesman Vince Borg said Wednesday that Barrick's interest will be determined by the price and conditions set for the deposit.
“Whenever [Russia] decides on terms of the auction or the process, we'll be there and assess it and determine whether or not we're interested.”
Regarding the Moody's review, Mr. Borg said Barrick is embarking on an ambitious expansion program that will have an impact on the company's finances, so a review is not surprising. Barrick has the only A-rated balance sheet in the gold mining sector, he added.
Barrick shares fell 27 cents to $25.37 (Canadian) on the Toronto Stock Exchange on Wednesday.
© The Globe and Mail
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