Barrick poised to sell more gold mines as it whittles down debt
Danielle Bochove and Scott Deveau, Bloomberg
2:36 PM, E.T. | July 16, 2015
2:36 PM, E.T. | July 16, 2015
Tags: Barrick Gold
BARRICK GOLDStock data delayed up to 20 minutes
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Barrick Gold Corp., nearing a deal for its Zaldivar copper mine, is likely to consider three other mines as leading candidates for sale as it works to cut the biggest debt in the gold industry.
Among the remaining non-core mining operations that Barrick would examine selling are its 50 percent stake in Australia’s Kalgoorlie mine, Canada’s Hemlo and Bald Mountain in Nevada, according to analysts and investment bankers.
The world’s largest producer of the metal has pledged to raise at least $3 billion US this year to reduce its $12.9 billion debt. The Toronto-based company is in advanced discussions to sell a 50-percent stake in its Zaldivar mine in Chile with final bids submitted last week by China Molybdenum Co., BHP Billiton Ltd. and others, people familiar with the matter said last week.
While Barrick has said it only wants to sell a 50 percent stake in the mine, some of the bidders were expected to have submitted bids for the whole operation, which is valued at more than $2 billion, the people said.
If completed, Zaldivar would mark the last of three deals Barrick has pledged to complete this year. In May, the company sold a 50-percent stake in its Porgera mine in Papua New Guinea to Zijin Mining Group Co. for $298 million. That came two days after it agreed to sell its Australian Cowal mine to Evolution Mining Ltd. for $550 million.
‘Bedrock Principle’
Excluding Zaldivar, the company has made more than $2 billion in deals since its total debt peaked at $15.8 billion in 2013, the same year gold futures had their biggest annual plunge in more than three decades. The debt had ballooned after Barrick’s takeover of copper miner Equinox Minerals Ltd. in 2011.
Reducing debt will remain a priority after the Zaldivar sale, Andy Lloyd, a Barrick spokesman, said this week in an e- mail.
“Prudent financial management was a bedrock principle of the company and our current level of debt is inconsistent with that principle,” Lloyd said. “No priority is more important than restoring a strong balance sheet.”
He declined to comment on analysts’ speculation on specific asset sales.
Barrick’s credit rating has been slipping at Standard & Poor’s since 2006 and was downgraded to BBB- in March, the lowest investment grade. For years, Barrick had the only A-rated balance sheet in the gold industry, Lloyd said.
Off Table
Chairman John Thornton has led a strategy to make Barrick a nimbler company more focused on its core gold operations. A former president of Goldman Sachs Group Inc., he joined Barrick as co-chairman in 2012 and fully replaced founder Peter Munk in April 2014.
The company’s shares, which fell 0.5 percent to $12.41 at 9:30 a.m. ET in Toronto, have dropped more than 75 percent since Sept. 6, 2011, when gold hit a record intraday high in New York. Gold prices have plunged about 41 percent since then.
Barrick has said five mines are off the table for sale: Cortez and Goldstrike in Nevada, its 60 percent stake in Pueblo Viejo in the Dominican Republic, Lagunas Norte in Peru and Valadero in Argentina. The company views its Turquoise Ridge mine in Nevada as an “emerging core” asset and therefore also not an attractive sales option.
Of those remaining, the Kalgoorlie mine -- a 50/50 joint venture with Newmont Mining Corp. -- is a non-core gold asset that would be relatively easy to divest, according to Ron Stewart, a Toronto-based analyst at Macquarie Capital Markets.
Golden Sunlight
“I could see Newmont wanting to consolidate 100 percent of that, and that would get Barrick out of Australia altogether,” Stewart said in a phone interview.
The Hemlo mine also bears similarities to Cowal, according to HSBC Securities USA’s Patrick Chidley.
“You’ve got a Canadian mine that’s costs are coming down as a result of the Canadian dollar weakening, and you’ve got a demand for supposedly low-risk mines in jurisdictions like Canada and Australia,” Chidley said by phone. “I would say if Barrick put that on the market, there would be quite a few bidders.”
Stewart said a sale of Hemlo may be less likely given the tax efficiencies that come from having mining income in Canada, where Barrick’s head office is located.
There are also a number of non-core U.S. mining assets that Barrick might want to sell. Of these, Montana’s Golden Sunlight is nearing the end of its life and would likely be difficult to sell, analysts said.
Equity Raise?
The company’s non-core gold assets in Nevada also may be sold as a package, according to Andrew Kaip, an analyst at BMO Capital Markets in Toronto. Bald Mountain is seen to be the strongest and might be used to entice buyers to purchase the weaker Ruby Hill and Round Mountain mines, he said.
“They can put together all of those assets as an emerging, Nevada-focused gold company and somebody’s going to take it off their hands,” Kaip said.
Other avenues Barrick may consider to raise funds include a share sale, selling so-called streaming rights to future production, or having an investor take a minority stake in the company and get a portfolio of joint ventures alongside that investment, bankers have said.
Barrick’s ratio of total debt to earnings before interest, depreciation and amortization sits at 3.4, according to Bloomberg estimates, and S&P said in March it expected debt to remain at more than 3 times EBITDA through 2016.
Gold Prices
If Barrick wanted to return to an A credit rating, it would have to reduce its total debt/EBITDA ratio by half to roughly 1.7 times, the median level of its peers at that rating, according to Bloomberg Intelligence credit median analysis.
It’s unlikely Barrick will see much of an improvement in its credit rating until gold prices recover, Richard Bourke, a BI senior credit analyst, said Wednesday by phone. Selling equity isn’t very attractive at this point given its share price.
“I don’t think you can sell your way to a higher rating,” Bourke said of Barrick’s asset sales. “They really need gold prices to recover to get them there.”
Among the remaining non-core mining operations that Barrick would examine selling are its 50 percent stake in Australia’s Kalgoorlie mine, Canada’s Hemlo and Bald Mountain in Nevada, according to analysts and investment bankers.
The world’s largest producer of the metal has pledged to raise at least $3 billion US this year to reduce its $12.9 billion debt. The Toronto-based company is in advanced discussions to sell a 50-percent stake in its Zaldivar mine in Chile with final bids submitted last week by China Molybdenum Co., BHP Billiton Ltd. and others, people familiar with the matter said last week.
While Barrick has said it only wants to sell a 50 percent stake in the mine, some of the bidders were expected to have submitted bids for the whole operation, which is valued at more than $2 billion, the people said.
If completed, Zaldivar would mark the last of three deals Barrick has pledged to complete this year. In May, the company sold a 50-percent stake in its Porgera mine in Papua New Guinea to Zijin Mining Group Co. for $298 million. That came two days after it agreed to sell its Australian Cowal mine to Evolution Mining Ltd. for $550 million.
‘Bedrock Principle’
Excluding Zaldivar, the company has made more than $2 billion in deals since its total debt peaked at $15.8 billion in 2013, the same year gold futures had their biggest annual plunge in more than three decades. The debt had ballooned after Barrick’s takeover of copper miner Equinox Minerals Ltd. in 2011.
Reducing debt will remain a priority after the Zaldivar sale, Andy Lloyd, a Barrick spokesman, said this week in an e- mail.
“Prudent financial management was a bedrock principle of the company and our current level of debt is inconsistent with that principle,” Lloyd said. “No priority is more important than restoring a strong balance sheet.”
He declined to comment on analysts’ speculation on specific asset sales.
Barrick’s credit rating has been slipping at Standard & Poor’s since 2006 and was downgraded to BBB- in March, the lowest investment grade. For years, Barrick had the only A-rated balance sheet in the gold industry, Lloyd said.
Off Table
Chairman John Thornton has led a strategy to make Barrick a nimbler company more focused on its core gold operations. A former president of Goldman Sachs Group Inc., he joined Barrick as co-chairman in 2012 and fully replaced founder Peter Munk in April 2014.
The company’s shares, which fell 0.5 percent to $12.41 at 9:30 a.m. ET in Toronto, have dropped more than 75 percent since Sept. 6, 2011, when gold hit a record intraday high in New York. Gold prices have plunged about 41 percent since then.
Barrick has said five mines are off the table for sale: Cortez and Goldstrike in Nevada, its 60 percent stake in Pueblo Viejo in the Dominican Republic, Lagunas Norte in Peru and Valadero in Argentina. The company views its Turquoise Ridge mine in Nevada as an “emerging core” asset and therefore also not an attractive sales option.
Of those remaining, the Kalgoorlie mine -- a 50/50 joint venture with Newmont Mining Corp. -- is a non-core gold asset that would be relatively easy to divest, according to Ron Stewart, a Toronto-based analyst at Macquarie Capital Markets.
Golden Sunlight
“I could see Newmont wanting to consolidate 100 percent of that, and that would get Barrick out of Australia altogether,” Stewart said in a phone interview.
The Hemlo mine also bears similarities to Cowal, according to HSBC Securities USA’s Patrick Chidley.
“You’ve got a Canadian mine that’s costs are coming down as a result of the Canadian dollar weakening, and you’ve got a demand for supposedly low-risk mines in jurisdictions like Canada and Australia,” Chidley said by phone. “I would say if Barrick put that on the market, there would be quite a few bidders.”
Stewart said a sale of Hemlo may be less likely given the tax efficiencies that come from having mining income in Canada, where Barrick’s head office is located.
There are also a number of non-core U.S. mining assets that Barrick might want to sell. Of these, Montana’s Golden Sunlight is nearing the end of its life and would likely be difficult to sell, analysts said.
Equity Raise?
The company’s non-core gold assets in Nevada also may be sold as a package, according to Andrew Kaip, an analyst at BMO Capital Markets in Toronto. Bald Mountain is seen to be the strongest and might be used to entice buyers to purchase the weaker Ruby Hill and Round Mountain mines, he said.
“They can put together all of those assets as an emerging, Nevada-focused gold company and somebody’s going to take it off their hands,” Kaip said.
Other avenues Barrick may consider to raise funds include a share sale, selling so-called streaming rights to future production, or having an investor take a minority stake in the company and get a portfolio of joint ventures alongside that investment, bankers have said.
Barrick’s ratio of total debt to earnings before interest, depreciation and amortization sits at 3.4, according to Bloomberg estimates, and S&P said in March it expected debt to remain at more than 3 times EBITDA through 2016.
Gold Prices
If Barrick wanted to return to an A credit rating, it would have to reduce its total debt/EBITDA ratio by half to roughly 1.7 times, the median level of its peers at that rating, according to Bloomberg Intelligence credit median analysis.
It’s unlikely Barrick will see much of an improvement in its credit rating until gold prices recover, Richard Bourke, a BI senior credit analyst, said Wednesday by phone. Selling equity isn’t very attractive at this point given its share price.
“I don’t think you can sell your way to a higher rating,” Bourke said of Barrick’s asset sales. “They really need gold prices to recover to get them there.”
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