Gold's tumble poses problems for debt-laden Barrick

Mon Jul 20, 2015 12:59pm EDT
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TORONTO, July 20 (Reuters) - The plunging gold price poses more challenges for Barrick Gold, the world's largest gold producer, which is already shopping its assets and raising money to try to trim debt levels that stand well above those of its North American peers.

Gold fell below the $1,100 for the first since March 2010 on Monday as the U.S. dollar continued to strengthen in anticipation of the first increase in U.S. interest rates in nearly a decade.

The slide sent shares of big gold miners into freefall for a third straight trading day with Barrick being the worst hit and falling more than 10 percent in morning trading to as low as $7.82 on the New York Stock Exchange. Its shares last traded at these levels in 1989.

With some 40 percent of Barrick's overall gold output coming from mines in the United States, analysts note that rivals like Agnico Eagle and Goldcorp Inc are in a better position as they have greater exposure to mines in Canada, where a weakening Canadian dollar lowers production costs for miners and offsets some of the hit from a sliding gold price.

Toronto-based Barrick is by far the most leveraged of the major North American precious metal miners. Its net debt stands at roughly 2.7 times its earnings before interest, taxes, depreciation and amortization, significantly higher than those of rivals Goldcorp and Newmont Mining Corp at 1.6 times and 1.5 times, respectively.

Barrick is aiming to reduce its debt load by at least $3 billion by year-end. However, some analysts say the debt reduction moves may do little to improve investor perceptions.

"Overly indebted miners like Barrick have been selling assets and raising money where possible to bring down debt levels but if the gold price weakens, the sales might not improve credit multiples," noted JPMorgan analyst John Bridges, in a note to clients on Monday.

Spot gold fell $45.55 to $1,088.05 an ounce shortly after the Shanghai Gold Exchange opened on Monday. It regained some ground and moved above the $1,100 support level, but was still down 2.5 percent at $1,104.33 by 1400 GMT.

While Barrick's shares have fallen nearly 35 percent in the last three months, those of Goldcorp and Agnico-Eagle have slid about 25 percent and 16 percent, respectively. (Reporting by Euan Rocha; Editing by Peter Galloway)