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Barrick Gold shares tumble after $3 bln bought deal to cut debt announced

Barrick Gold Corp (NYSE:ABX) (TSE:ABX) shares dropped 6% in early deals Friday, after last night announcing a $3 billion bought deal offering to cut debt, extending losses from the regular trading session on Thursday when the gold miner said it would suspend construction at its Pascua-Lama mine in South America to further slash costs. 

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Barrick Gold Corp (NYSE:ABX) (TSE:ABX) shares dropped 6% in early deals Friday, after last night announcing a $3 billion bought deal offering to cut debt, extending losses from the regular trading session on Thursday when the gold miner said it would suspend construction at its Pascua-Lama mine in South America to further slash costs. 

Under an agreement with a syndicate of underwriters led by RBC Capital Markets, Barclays and GMP Securities, the company, the world’s largest producer of gold by volume, will offer up 163.5 million shares priced at $18.35 apiece. 

The company said the underwriters also have an over-allotment option, allowing them to purchase up to an additional 24.5 million shares for total proceeds of $3.45 billion.

The net proceeds from the offering will be approximately $2.9 billion, Barrick said in a statement released late Thursday. 

The gold producer is planning to use $1.1 billion of the net proceeds to redeem the outstanding $700 million worth of 1.75% notes due in 2014, and a further $350 million in 4.875% notes, also due next year. 

The company is also planning a cash tender offer for various outstanding debt securities of Barrick and its subsidiaries, using about $1.5 billion of its net proceeds to purchase notes in the proposed tender offer.

The balance of the new funds will be used to further strengthen Barrick's balance sheet, the company said, which could include further debt reductions and ongoing operating and capital expenditures at its portfolio of mines.

Barrick's shares dropped another 6% Friday in Toronto to $19.10 after shedding the same on Thursday following the company saying it is suspending construction at its Pascua-Lama mine that straddles the Chile-Argentina border as a means to conserve cash and reduce capital costs for next year by up to another $1.0 billion. The Pascua-Lama news overshadowed Barrick's solid quarterly results, which still revealed cash costs among the lowest in the industry at $916 per ounce in the third quarter. 

The company is also targeting $500 million of additional annual savings related to job reductions from a company-wide review launched earlier this  year -- now largely complete -- and through a new operating model and a program to reduce procurement costs. 

The troubled project on the border between Chile and Argentina was initially expected to be producing gold and silver this year, but it suffered legal setbacks as it has long been the subject of concerns relating to its proximity to glaciers and to the effects of inadequate water safety on downstream communities. In August, the gold miner took a $5.1-billion writedown on the project as part of an $8.7-billion impairment charge.

The gold producer, which has lost roughly 45% of its share price year-to-date, has been mired by shareholder complaints and various charges this year, as miners struggle to remain profitable amid a declining gold price and a higher cost environment. Since its 2013 annual meeting earlier this year, the company said its directors have been in discussions with its institutional investors and is in the midst of addressing issues that had been raised, including with Barrick's executive compensation scheme and a "rejuvenation of the board". 

Quick facts: Barrick Gold Corp.

Price: 35.33 CAD

TSX:ABX
Market: TSX
Market Cap: $62.82 billion
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