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Barrick Gold Corp to raise more than US$3-billion in share sale

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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.


ABX ... update





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 traded sharply lower all day Friday. They closed at US$18.01, down more than 7% on the day and well below the bought deal price of US$18.35.


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.

At US$18.35 a share, the bought deal was priced 5.4% below Barrick’s closing share 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.

Low metal prices also contributed to the suspension decision.

“I am convinced that the decision to suspend construction is the right thing to do for our company,” chief executive Jamie Sokalsky said on a conference call.

Randy Smallwood, the CEO of Silver Wheaton Corp. (which owns a streaming agreement on Pascua-Lama) said he wanted to see the project progress, but understands the decision to suspend until there is certainty on permitting.

When Barrick’s board approved construction of the Pascua Lama mine in 2009, it was expected to cost no more than US$3-billion. By last year, the target ballooned to US$8.5-billion.


“It’s really just a case of needing to attack it at full speed. Anything at half speed costs you the same, but you don’t get as much done,” he said.

“The reduced rates just didn’t make sense from an economic perspective.”

The decision to suspend Pascua-Lama, along with the huge equity deal, caps off a humiliating period for Barrick. Pascua ranks as one of the biggest debacles in the mining industry’s recent history.

When Barrick’s board approved construction of the mine in 2009, it was expected to cost no more than US$3-billion. By last year, the target ballooned to US$8.5-billion. The cost is likely to be significantly higher today because of subsequent delays and permitting issues.fp1101_barrick_stock_310_mf1.png?w=217&h

Some of the cost escalation is tied to general industry inflation, but much of it is self-inflicted. With Pascua-Lama, Barrick eschewed its usual strategy of hiring an engineering contractor to run construction, and tried to do so itself. The result was a disaster, as the company underestimated the challenges of building a huge project at high elevation in a remote location. A contractor was eventually brought in, but the damage was done.

Most seriously, Barrick shocked Chilean regulators by developing a water management system at Pascua that failed to meet the requirements in its environmental permit. The project was suspended and the company was ordered to come up with a new plan.

After all this time, Pascua is still only 50% complete. Roughly US$5.8-billion has been spent to date, and Barrick has written down the project by US$5.1-billion.

Mr. Sokalsky did not put a timeframe on when construction could resume. But he hinted it will not be anytime soon.

“I can see going through 2014 before we get the high level of certainty that we require to move onto the next stages. But it’s still very uncertain because so many things can change and happen, including [fluctuating] commodity prices, that it’s a bit of a moving target,” he said.

Regardless, Barrick is not expected to give up on Pascua-Lama, because it is a crucial part of the company’s future. It is expected to churn out up to 800,000 ounces of gold a year in its five years of production at ultra-low cash costs.

The Pascua news and the equity offering overshadowed strong third quarter earnings from the world’s biggest gold producer.

Adjusted profit of US$580-million, or US58¢ a share, was ahead of analyst expectations, and all-in cash costs of US$916 an ounce remain the lowest among the senior gold producers.'

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Golly - they have done this before !


Last time, it was to buyback hedges


Are these guys capable of generating any actual profit?


Or is the share price something like a scam to allow they to raise Big Money from time to time ?

=== ===


It seems like they "blow" their profits in unwise moves:


" disastrous $7.3-billion takeover of Equinox Minerals Ltd. in 2011"

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Financial Times ‎- 2 days ago

Peter Munk is poised to step down as Barrick Gold’s chairman, three decades after the Canadian entrepreneur launched the company that he turned into the world’s largest gold miner.

Mr Munk's announced intention to retire comes as Barrick wrestles with financial problems caused by the falling gold price and investment overruns, and after some investors this year increased their criticism of his oversight of the company’s corporate governance.

Barrick, toppled as the world's most valuable gold mining company, last week launched a $3bn equity placement to shore up its balance sheet.

. . .

John Thornton, the former Goldman Sachs banker, is already co-chairman and expected to succeed Mr Munk. Mr Thornton’s award of a package of Barrick shares then worth almost $12m – defended by Mr Munk – was one of the issues that has most aggrieved some Barrick investors.

Mr Munk, who turned 86 on Friday, has been one of Canada’s most colourful entrepreneurs with other business ventures ranging from stereo equipment to property.

. . .

Barrick’s rise was built upon a successful partnership with Bob Smith, one of Canada’s most experienced miners who died in 1998, and on the phenomenal output from its Goldstrike mine in Nevada, purchased for $62m in 1986 and still one of the world’s largest. Production at Goldstrike’s peak was 2m ounces of gold annually.

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