Moody's Investors Service downgraded Barrick Gold Corp.'s credit to the lowest investment grade rating, a blow to the company that is on track to reduce its debt by $3-billion (U.S.) this year.
Barrick is rapidly selling mines to reduce its $13-billion debt load. But Moody's said Barrick's debt is still too high given the weak gold price.
"Material organic debt reduction is unlikely and production will start declining in the next several years," Darren Kirk, Moody's senior credit officer, said in a statement announcing the downgrade.
Moody's changed the miner's outlook to "stable" from "negative" and downgraded Barrick's debt to one notch above junk status, a risky rating that would increase the company's borrowing costs.
A spokesman for Barrick said the company had made significant progress in reducing debt this year and said further cost reductions would strengthen the miner's resilience amid low gold prices.
Barrick incurred much of its debt from an ill-timed copper acquisition in 2011 and a bungled attempt to build a gold and silver mine on an Andean mountain.
The copper deal has been written down and the Andean project has been suspended.
With the precious metal price trading around $1,100 an ounce, down 40 per cent over four years, Barrick and the rest of the gold industry have been racing to shore up their finances.
In addition to selling assets, Barrick reduced its dividend again.
Moody's praised Barrick's financial strength and said the company had the ability to "manoeuvre through" the weak gold price environment. But the rating agency said Barrick was dependent on gold prices improving.
"They are either dependent on the higher price of gold to delever or they need to execute on maybe paring down some of the non-core assets and using the proceeds to invest in their core operations," Mr. Kirk said in an interview.
So far this year, Barrick has sold assets in Australia and Papua New Guinea, as well as half of its top performing copper mine in Chile. The company recently announced a deal to raise funds from one of its key precious metal mines Pueblo Viejo – a deal The Globe and Mail was first to report.
Barrick also announced it would put a batch of its smaller U.S. mines on the auction block. It has tapped Canadian Imperial Bank of Commerce to run the sale, according to people familiar with the matter. The sale is expected to be tough given the assets are higher cost and near the end of their lives. Barrick is not expected to raise more than $500-million from that group of mines.
Under Barrick chairman John Thornton, the company's priority is to reduce debt and focus on its top five gold mines in the Americas.
The mines in Nevada, Dominican Republic, Peru and Argentina, account for 60 per cent of Barrick's production and cost less than $800 to produce an ounce of gold.
But one of those mines, Lagunas Norte in Peru, will run out of gold in about five years if Barrick does not invest the capital to expand the operation.
According to Barrick's preliminary analysis, it would cost about $500-million to further develop Lagunas Norte.
Mr. Kirk said Barrick currently does not "have the ability to do that with their current balance sheet unless they were to sell some of their other non-core assets."
Moody's said it would upgrade Barrick's credit rating if the miner was able to lower its "debt to EBITDA" ratio – a key measure of whether a company can service its debt.
At the same time, Moody's warned it could downgrade Barrick's credit to junk status if its debt relative to income remained elevated.