Published On: Fri, Nov 1st, 2013

Barrick Gold Drops The Other Shoe : Now Selling $3 Billion Of New Equity Shares To Fix Balance Sheet

PX171_3CA0_9 Peter Munk  Barrick Gold BLOOMBERG

Peter Munk / Getty

Jewish Business News reported yesterday that Barrick Gold Corp had announced its third quarter results.  At the same time Barrick also announced the indefinite postponement of its new gold mining project at Pascua-Lima on the Argentina – Chilean border.

We indicated that further moves to shore up its weakened balance sheet might be in store, including possible asset sales or even an equity offering.

Well, Barrick has now definitively gone the latter route as the course of least risk, at the price of diluting existing shareholders – a price well worth paying in this writer’s humble opinion.

Barrick has now announced a US$3 billion public equity offering. The company reports that it has entered into an underwriting agreement with a syndicate of underwriters, led by RBC Capital Markets, Barclays and GMP Securities (formerly Griffiths McBurney Partners) for a “bought deal” of common shares in a public offering. The size of the deal is for gross proceeds of approximately US$3.0 billion representing 163.5 million common shares of Barrick, at a price of US$18.35 per share.

A “bought deal” of securities in Canadian financial markets is a good deal more firm than a regular public offering, and it normally obliges the underwriters to buy the shares no matter what, except in the case of a severe collapse of the overall financial markets themselves. Accordingly Barrick already as good as has the new money in the bank under normal circumstances, as a result.

The company has also granted the Underwriters an over-allotment option, to purchase up to an additional 24.5 million Common Shares at the offering price exercisable for a period of 30 days after closing. The gross proceeds of the offering will be approximately US$3.45 billion if the over-allotment option is exercised in full.

The net proceeds from the primary offering will be approximately US$2.9 billion, determined after deducting the Underwriters’ commission. In the event that the over-allotment option is exercised in full, the net proceeds to be received by Barrick would be approximately $3.3 billion.

Barrick plans to use most of the money raised to strengthen its balance sheet and improve the long-term liquidity position of the company. It intends to do so by using approximately $2.6 billion of the net proceeds to redeem or repurchase outstanding debt of, or guaranteed by, Barrick, with such redemptions and repurchases focused on debt maturing in the short and medium term, thus improving the outlook for its liquidity considerably.

The rest may be used for further debt reduction and/or for what is known as “general corporate purposes”, i.e. including ongoing operating and capital expenditures relating to Barrick’s existing portfolio of mines.

The new common shares will be offered by way of a short form prospectus in all of the provinces and territories of Canada and will be registered in the United States pursuant to a registration statement filed under the multi-jurisdictional disclosure system.

Barrick’s common shares outstanding are expected to increase from approximately 1.0 billion shares to approximately 1.16 billion shares (1.19 billion shares if the over-allotment option is exercised in full).

The Offering is anticipated to close on or about November 14, 2013 and is subject to certain customary conditions and regulatory approvals.

Well done , Barrick, to recognize a problem and then to deal with it expeditiously is a sign of a well-managed company; though a large amount of contrition for getting into such a predicament in the first place also remains in order.


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