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Barrick Gold Corp buys back part of outstanding debt

September 30
8:37 AM 2015

As part of its debt reduction exercise, the world's largest bullion producer Barrick Gold Corp has offered to buy back some part of its outstanding debt. Despite the drop in gold prices, The Toronto-based Barrick Gold Corp has been selling assets.

The bullion producer will also buy notes worth $750 million. Barrick Gold Corp has a total debt of $3bn and the debt reduction plan is almost 90 percent completed.  The gold miner aims to reduce debt by $3bn in 2015 and further $2bn in 2016.

However, the asset sale may benefit the gold miner in the short term only as it will likely impact the long-term revenues and profits as production at gold mines is dropping significantly. Global rating agency Moody's Corporation has already lowered the credit rating of Barrick Gold Corp.

Barrick Gold Corp has so far raised $2.7bn falling short of only $300mn to its target. Moody's Corporation in August lowered the credit rating of Barrick Gold Corp. The rating agency felt that the asset sale mayn't be sufficient to reduce the debt of Barrick Gold Corp. Moody's has also cut Barrick's rating from Baa2 to Baa3, a level above junk status. 

Experts foresee that ongoing exercise at Barrick Gold Corp will result in only short term gains only. Kelvin Dushnisky, President, Barrick Gold Corp, said: "The company is 90 percent through the $3-bn debt reduction plan. It has had an exceedingly high level of interest for US assets it has put up for sale.

The falling prices of gold are impacting gold mining companies and more adversely on those with high debt burden. The debt-ridden Barrick Gold Corp entered into gold bear market. The lower prices of gold have squeezed revenues of the miner. 

The earnings at Barrick Gold Corp are expected to drop 50 percent this quarter and 13 percent in next quarter. Most of the profits are being used for debt servicing. The company has taken up debt reduction program and aiming to reduce debt by $3bn in 2015 and further $2bn in 2016. 

The market capitalization of Barrick Gold Corp stands at $7.66 bn. Despite its debt reduction plan in place, Barrick was downgraded owing to its material organic debt, which remains at the same level. 

The asset sale is beneficial to the company for short term only. It will impact the long-term revenues and profits as production at gold mines is dropping significantly. Adding to this, production at its mines is declining by the day. 

The miner has lifted off the restrictions on processing activity at Veladero mine in San Juan province. Barrick Gold Corp has taken precautionary and preventing safety measures for workers at the mine. It hired an independent third party laboratory. Recently a local court restricted the addition of new reagents to the mine's heap leach circuit as a valve on a pipe carrying cyanide solution leaked. 

Barrick Gold Corp has already initiated lowering capital spending. It has so far reduced capital expenditure to $1.7bn in 2015 from $2.4bn in 2014. It has undertaken assets sales across its different locations. The asset sales plan includes Cowal Mine and 50 percent interest in Zaldiva copper mine.

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