Despite some softness in the gold market, Barrick Gold Corporation (NYSE: ABX) is up 1.7% on the day at $32.91. It is a rather impressive move when you consider that S&P is downgrading the gold giant closer to junk grade status.
S&P cut the rating down to BBB+ from A- and most importantly the ratings agency is maintaining that the gold company’s outlook is Negative. Today’s cut reflects higher capital spending plans at the same time that a gold production is being delayed by a year at its Pascua-Lama gold and silver project. This now effectively precludes any meaningful balance sheet deleveraging. The negative outlook is based upon execution risks at the project which could effectively stretch credit measures and free operating cash flow generation in the base case scenario.
Investors have to care about this credit rating downgrade even if they choose to say that ratings agencies no longer matter. Gold prices remain high, but the cost of production has risen as well for many key producers. Barrick has a $32.9 billion market value as of today with the most recent gain.
It is usually considered impressive when a company shrugs off a key downgrade of this sort. At $32.91 the 52-week trading range is $31.00 to $55.95.
JON C. OGG