TORONTO (miningweekly.com) – Risk management firm Moody's Investors Service on Wednesday downgraded the senior unsecured ratings of Barrick Gold and all guaranteed rated subsidiaries to Baa3 from Baa2.

Barrick's outlook had also been changed to stable from negative.

"Barrick has been downgraded because its leverage will remain elevated even after announced asset sales, material organic debt reduction is unlikely and production will start declining in the next several years," said Moody's VP and senior credit officer Darren Kirk in explaining the firm’s ratings rationale.

The lowest rating under Moody's long-term ‘investment grade’ corporate obligation rating, Baa3, meant that Barrick’s obligations were subject to moderate credit risk.

Toronto-headquartered Barrick’s large-scale, diverse and low-cost gold assets, sizeable copper operations, favourable geopolitical risks and "excellent" liquidity underpinned its Baa3 rating. Moody's expected Barrick to achieve its debt reduction target of $3-billion by the end of 2015 and continue to take aggressive actions to further reduce its costs and capital requirements in response to the current, lower gold price environment.

Barrick's adjusted financial leverage was expected to range between 3.5x and 3x through 2016, assuming a gold price between $1 100/oz and $1 200/oz. Barrick was likely to restrain its capital expenditure, keeping it below production maintenance levels through the next couple of years to generate roughly breakeven free cash flow, Moody's believed.

Barrick's organic gold output would remain relatively stable through 2017, but then start to fall.

Barrick's excellent liquidity, Moody’s noted, provided significant flexibility to manoeuvre through a low gold price environment. Cash of $2.1-billion and an undrawn $4-billion revolver, which matured in 2020, would be supplemented by pending asset sale proceeds of almost $2.5-billion.

These liquidity sources were sufficient to fund mandatory debt repayments of $460-million through to the second quarter of 2016 and they could eliminate all Barrick's debt maturities through 2020, if the company prioritised repayment of its near-term debt obligations with its asset-sale proceeds.

Moody's forecast that Barrick would produce breakeven free cash flow over the next year and maintain acceptable headroom to its consolidated tangible net worth covenant in its bank credit facility – $5.7-billion at the end of the second quarter, compared with a minimum of $3-billion.

The stable ratings outlook assumed that Barrick would continue to make cost improvements a priority and continue to seek ways to opportunistically reduce its debt and leverage through asset sales or other means, particularly if the gold price remained below $1 200/oz.

Conversely, an upgrade to Baa2 could occur should the miner's operating cash flows enable it to fund the necessary investments to achieve at least stable production over time, as well as sustain debt/earnings before interest, taxes, depreciation and amortisation (Ebitda) below 2.5x and cash from operations less dividends/debt around 30%.

Barrick's rating could be downgraded to Ba1 if debt/Ebitda appeared likely to be sustained above 3.25x and cash from operations, less dividends/debt, remained below 20%.

The miner was one of the world's largest gold producers, with gold mines in the US, Canada, Peru, Argentina, Dominican Republic, Papua New Guinea, Australia and Africa, and copper mines in Chile and Zambia.