Barrick Sees Up to $3 Billion in Impairments on Lower Gold

  • Preliminary analysis shows $1.8 billion in goodwill charges
  • World's No. 1 gold miner lowered price assumption to $1,000/oz

Barrick Gold Corp., the world’s largest producer of the metal, said it may book as much as $3 billion in impairment charges as a prolonged gold slump forces it to revise its price assumptions for 2016.

A preliminary review shows potential goodwill impairment charges of about $1.8 billion, and asset impairment charges in the range of $1 billion to $1.2 billion, the Toronto-based company said Thursday in a statement. The asset impairments are primarily related to the stalled Pascua-Lama project on the Chile-Argentina border and the Pueblo Viejo mine in the Dominican Republic.

The company lowered its gold price assumption to $1,000 an ounce for 2016 and to $1,200 long term.

“In line with our objective of generating positive returns in virtually any foreseeable gold price environment, we have decided to use pricing for our impairment testing that is prudent in current market conditions,” Barrick President Kelvin Dushnisky said in the statement.

In 2015, Barrick had used $1,250 an ounce as its short-term gold price assumption in impairment tests and $1,300 for the long term, spokesman Andy Lloyd said in a phone interview from Toronto.

‘Very Deliberate’

“It reflects a very deliberate, very prudent decision, which reflects how we’re managing our business,” Lloyd said.

Barrick also said its preliminary 2015 production was 6.12 million ounces of gold, in line with the company’s latest guidance of 6 million to 6.15 million ounces. As of Thursday, analysts had expected 6.03 million ounces, the average of 11 estimates compiled by Bloomberg.

Barrick rose 2.2 percent to C$12.16 at the close in Toronto, while gold futures slipped 0.2 percent to settle at $1,096.30 an ounce on the Comex in New York.

Barrick has been aggressively working to improve its balance sheet after gold prices slumped for three straight years. The company sold assets and formed partnerships in 2015 and used proceeds to cut debt by $3 billion. Dushnisky has said Barrick will continue to focus on cutting operating costs this year to increase free cash flow.

‘Just the First’

The impairment news isn’t a surprise given the challenging commodity market, according to Andrew Kaip, an analyst at BMO Capital Markets. He is expecting other gold miners also will report impairment charges.

“I think that Barrick is just the first, and they’re not the most vulnerable,” Kaip said by phone from Toronto.

Moody’s Investors Service said Thursday it placed Barrick’s Baa3 credit rating on review for a possible downgrade, along with dozens of other mining companies in the past two days. If Barrick was downgraded, it would be the first time its bonds have lost their Moody’s investment-grade rating, according to data compiled by Bloomberg.

“These reviews reflect a mix of declining prices that are near multi-year lows, weakening demand and a prolonged period of oversupply that will continue to significantly stress the credit profiles of companies in the mining and metals sector,” Moody’s said in an e-mailed statement.

Barrick’s shares have increased 19 percent this year amid climbing prices for gold, the best-performing metal on the Bloomberg Commodity Index in 2016. Earlier this month, Barrick regained its footing as Canada’s most valuable gold miner by market capitalization by surpassing Vancouver-based Goldcorp Inc.