Gold firm sets course to steer clear of junk status

Barrick is in choppy waters, writes Danielle Bochove

BARRICK Gold has a road map to avoid following other miners into junk credit-rating status as the largest bullion producer extends cost-cutting, partnerships and asset sales, says president Kelvin Dushnisky.

In his first interview since becoming sole president last month, Mr Dushnisky said Barrick was 90% of the way through a $3bn debt-reduction target, planned to continue reducing headcount and had an “exceedingly high” level of interest in six US mining assets up for sale. Eliminating dividends was unlikely, he said on Sunday.

Mr Dushnisky, who served as a co-president for a year, is striving to boost productivity and lower costs after gold prices fell more than 40% from a 2011 peak, sending the firm’s shares plummeting and bond yields soaring. Barrick is rated at the lowest investment grade by Standard & Poor’s and Moody’s, although both have stable outlooks on the miner.

“I’m not concerned,” he said, when asked about the risk of following Teck Resources into junk status. “We’ve been clear with our objectives. We’ve received very positive feedback from our shareholders on that clarity. We’ve been doing what we say we’re going to do.”

Barrick’s $1.5bn of bonds due in 2023 have fallen to 89c on the dollar from 97c at the end of last year. That pushed up yields to 6.2% last week, pushing out the gap with an index of debt sold by materials companies to the widest in two years. Teck, Canada’s largest diversified miner, was stripped of its investmentgrade rating by Moody’s as falling prices of everything from coal to zinc overshadow costcutting efforts.

The company has identified $1.6bn of $2bn in cost reductions targeted this year and next, and has booked $1.1bn of those so far. It now plans to focus on aggressively cutting operating costs.

“That’s where we see there’s a lot more room to go.”

Barrick has reduced its Toronto workforce to 150 from 370 in 2013. This month, Barrick told staff at its Salt Lake City office it would be closing in November, with 110 job losses.

The headcount numbers now “feel about right” although there will probably be more job cuts at mines and in mid-level positions “that come between Toronto and the mines”, he said.

The largest producer of gold in the world had all-in sustaining costs of $840/oz-$880/oz for this year. About 70% of those were operating costs and 30% of the latter came from labour, Mr Dushnisky said.

Barrick is selling assets and forming partnerships with other miners to cope with gold prices trading at about $1,100/oz.

The company has achieved $2.7bn of a $3bn debt-reduction target and is looking to rein in debt to 2 to 2.5 times earnings before interest, taxes, depreciation and amortisation.

Barrick shares closed down 0.7% on Friday in Toronto.

The stock is down 29% this year, more than the 13% average decline among peers tracked by Bloomberg. The shares are worth less than the company’s book value and are trading at 15 times estimated profit compared with the peer group average of 32 times.

Barrick would consider any offer that came its way.

“We just think we have more value to create for our shareholders,” he said. “Barrick is not for sale.”