Barrick Gold Corp. (ABX) has explored cash-raising options ranging from a strategic equity investment to a sale of part of its copper business during a months-long effort to cut debt, said people with knowledge of the matter.
The company also has examined the sale of part of its $8.5 billion Pascua-Lama mine on the Argentina-Chile border, said the people, who asked not to be named as the deliberations are private. Barrick has yet to settle on any options, and there’s no certainty a deal will occur, the people said.
Barrick, the world’s largest gold producer, has come under pressure this year as the price of the metal fell 19 percent and debt increased. The Toronto-based company, led by Chief Executive Officer Jamie Sokalsky, has considered selling stakes in either itself or Pascua-Lama, which has some of the world’s biggest gold and silver deposits, to state-backed Chinese investors, the people said.
Sokalsky already has announced a series of measures to counter the gold-price decline and rising costs, including the sale of some mines and energy assets. His efforts to prioritize investment returns over production volumes have marked the end of three decades of expansion under founder Peter Munk.
Andy Lloyd, a spokesman for Barrick, declined to comment on what the company is considering.
Barrick, which is scheduled to report third-quarter earnings today before the start of regular trading, last year appointed John Thornton, a former president of Goldman Sachs Group Inc., as co-chairman alongside 85-year-old Munk. Thornton is a professor and director of the global leadership program at China’s Tsinghua University and sits on the board of companies including China Unicom (Hong Kong) Ltd.
The 59-year-old also is a member of the international advisory board of China Investment Corp., the nation’s sovereign wealth fund. Munk highlighted Thornton’s ties to China at Barrick’s annual shareholder meeting in April, saying the country will provide an important source of capital for the mining industry.
Barrick rose 3.7 percent to $20.50 at the close yesterday in New York, giving the company a market value of $20.52 billion. The shares have declined 41 percent this year.
The sale of a stake in the company to a strategic investor may be negative for current shareholders because they would be diluted, said Caesar Bryan, manager of the Rye, New York-based Gabelli Gold Fund, which has about $220 million under management.
“I’m not sure that selling a lot of equity at the moment is the way to go,” he said.
Barrick already has written down the value of Pascua-Lama by more than $5 billion amid delays and ballooning expenses, and the company has said capital costs for the project may exceed its latest estimates.
Other gold producers including Newmont Mining Corp. (NEM), the world’s second-largest by sales, have announced billions of dollars of writedowns after the price of the metal plunged. Gold producers are slashing budgets and cutting output to focus on mining the most profitable ounces.
Barrick has sold off some costlier mines to hold down expenditures. Meanwhile, long-term debt has surged 19 percent from the end of last year to $14.4 billion. The debt burden, coupled with spending tied to Pascua-Lama, may raise concern about Barrick’s liquidity if gold prices keep dropping, TD Securities Inc. analyst Greg Barnes said earlier this year.
Sokalsky said last month that in spite of the increase in debt, Barrick doesn’t have an issue with repayment. The company’s scheduled repayments of $1.3 billion through 2015 are less than its operating cash flow in the first half of this year, he said. Barrick, which has cut its dividend this year, has $2.4 billion in cash and an undrawn $4 billion credit facility, he said then.
It may make sense for Barrick to sell part of its copper business to increase the percentage of revenue from gold, David West, a Vancouver-based analyst at Salman Partners Inc., said in a phone interview.
“They’re a gold company, they should stay a gold company,” he said.
Barrick owns the Zaldivar copper mine in Chile, the Lumwana copper mine in Zambia and the Jabal Sayid copper project in Saudi Arabia.