Pascua-Lama woes prompt S&P to lower Barrick Gold’s credit rating
Higher forecast capex spending, combined with delays and other risks at the Pascua Lama project, prompted Standard & Poor’s to downgrade Barrick’s credit ratings.
Standard & Poor’s has downgraded Barrick Gold from “A-” to “BBB+” with a negative outlook, citing higher forecasted capital spending, as well as “execution risks surrounding Pascua-Lama”.
S&P said its downgrade “follows the company’s announcement of a capital cost increase of close to US$2.5 billion and a one-year delay to production start-up at its multi-billion-dollar Pascua-Lama gold-silver project.”
The ratings agency’s negative outlook on Barrick “reflects our view that the execution risks surrounding Pascua-Lama could potentially stretch the company’s credit measures and free operating cash flow generation beyond the levels we have assumed within our base case scenario.”
“In this scenario, we expect Barrick to generate annual EBITDA of about US$6.5 billion through 2013, with annual FFO [funds from operations] of about $4 billion, which would be consumed by increased capital expenditures.”
What an interesting update with Barrick…. a DOWN GRADE?. Many investors believe that so-called cash costs which are $600-700 an ounce means these gold miners are making a great deal of money. However in Barrick’s case (as well as the majority of gold miners), CAPITAL EXPENDITURES are consuming a great deal of their profits.
In reality, the marginal cost for producing gold is much higher as gold miners have to replace their production with new reserves.
murphy…. had a good post yesterdays in TURD’S blog when he stated that the average ore grade for the gold miners was 1.3 g/t. I also showed that presently Barrick produced gold for the first half of 2012 at 1.46 g/t. Furthermore, the future resources of the gold miners average only 0.7 g/t. Thus, the future gold mining industry will be consuming twice as much (and probably more) energy to produce gold.
Many investors who hold mining stocks are banking on the BIG MOVE in gold and silver to shoot their stock prices to the moon. We must remember, when gold and silver finally get their big move, this may also be at the same time the US and parts of the world are experiencing a hyperinflationary event. At this time, energy, steel and all the costs that go into mining will explode along with the price of gold and silver. We may not see the big profits in the mining stocks that we are hoping for.
However, the good part of the story is the fact that as the PAPER PONZI FIAT MONETARY SCHEME collapses, there will be a mad rush into the precious metal stocks. Even though there may not be the huge profits,… there may be huge percentage moves due to being a safe haven status.