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Barrick Gold Corp. has launched a monster US$3-billion equity offering in an effort to repair its debt-laden balance sheet. The move was announced late Thursday afternoon, just hours after the Toronto-based miner said it is suspending construction of the troubled Pascua-Lama project.
“Both actions will radically improve Barrick’s balance sheet, which had become the major overhang to its outlook,” Deutsche Bank analyst Jorge Beristain wrote in a note.
Barrick shares were down more than 6% at US$18.15 in early trading Friday. It is the third largest bought deal in Canadian history, according to Financial Post data, and follows months of speculation that Barrick would tackle its debt load. The company is carrying US$15.4-billion of debt, much of it tied to the disastrous $7.3-billion takeover of Equinox Minerals Ltd. in 2011.
As gold prices declined this year, servicing that debt became more of a burden and pushed Barrick into action. The company plans to use at least US$2.6-billion of the proceeds from the offering to repay debt.
The bought deal is priced at US$18.35 a share, a 5.4% discount to Barrick’s closing price on Thursday. By comparison, when the company issued US$4-billion of stock in 2009, it was priced at US$36.95 a share.
Reducing the debt will be a relief for investors and credit rating agencies that have raised concerns about it. But on the downside, the offering boosts Barrick’s share count by more than 16%.
Much like the equity offering, the Pascua-Lama suspension provides Barrick with some financial breathing room, as it removes up to US$1-billion of spending in 2014. But it throws the company’s future growth into question.
Regardless, industry experts agreed with Barrick that stopping construction is the right move.
The biggest reason is costs. Barrick slowed construction this year after regulators ordered the company to halt work on the Chilean side of the mine. The slowdown created cost pressures, as the timeline to production got pushed out while employees and contractors continued to be paid. Meanwhile, there was no certainty of when Barrick would get the go-ahead from Chilean regulators to build at full speed again, which is much more efficient.
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