Moody's Investor's Service has placed Barrick Gold Corp. on review for a possible rating downgrade of its senior unsecured debt rating after the company was forced to halt work on an $8.5-billion (U.S.) gold mine in the Andes mountains between Chile and Argentina.
The review is the latest in a litany of setbacks for the world's largest gold miner, whose stock hit consecutive 52-week lows every day this week amid plunging gold prices and worries the Pascua-Lama project, already a year-behind and billions of dollars over budget, could see months of delays.
"The review arises from the challenges facing the company on its Pascua-Lama project following the Chilean government's injunction to halt construction activity on the Chilean side of the project and the uncertainty this creates with respect to the cost and timing of this project," the ratings agency said, adding that approximately $7.45-billion of debt has been placed under review.
Barrick stock is down nearly 50 per cent this year alone. In June last year, the stock hit a 52-week high of $44.75 (Canadian).
Much of the losses occurred over the past week, after Barrick said it was forced to suspend work on the Chilean side at Pascua-Lama, slated to become one of the world's largest-ever gold mines as well as one of its biggest silver mines.
The project is lauded as a testament to mine building because of its location – it is set between jagged mountain peaks at 5,000 meters – its transnational politics and environmental challenges – it is being built alongside ancient glaciers.
In halting work in Chile last week, an appeals court was agreeing to look at allegations the project is polluting precious groundwater and rivers at the base of the Andes in the Atacama desert region, one of the driest areas on earth.
While concerns around Pascua-Lama are paramount in the ratings review on Barrick, Moody's said it was also looking at the impact of gold prices which in recent days have seen their steepest declines in 30 years.
"The recent collapse in gold prices and expected increase in volatility is also a factor in the review although not the principal driver as our sensitivity scenarios are run at prices lower than those at which gold is currently trading," it said.
Gold traded at about $1,374 (U.S.) an ounce on Wednesday, down from $1,585 a week ago, $1,690 in January and $1,900 in September, 2011. The precipitous drop dragged many Canadian mining companies to their worst equity valuations in a year, in part amid worries falling gold prices would see costs overtake profits.
In a study published on Monday, RBC Dominion Securities Inc. predicted "Significant Pain at $1,300 gold" for North American miners, likely boosting debt requirements to complete planned capital programs. The study singled out Barrick, Newmont Gold Co. and Kinross Gold Corp. as companies that could trigger rating downgrades if gold hits $1,200 an ounce.
To avoid that, companies could undertake a series of measures, RBC said, such as deferring capital spending, divesting non-core assets, scaling back of projects and/or investments, putting spending on hold, cutting dividends; and even placing higher-cost mines on care and maintenance until gold prices recovered.
Moody's Barrick rating is currently Baa1 or "stable" outlook and the agency said that a downgrade, if it were to occur, was not likely to be more than one notch.
"Should a downgrade occur, the company will continue to have an investment grade rating with considerable financial flexibility and excellent access to debt capital markets," Barrick said in an e-mailed statement. "As part of our disciplined capital allocation framework, we are focused on managing the business to maximize returns in any gold price environment."