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Barrick Gold Hat Trick: Mega-Stock Sale to Pay Debt

You have heard of robbing Peter to pay Paul, but how about diluting equity to wipe out debt? Barrick Gold Corp. (ABX) was already lower after earnings by 5.4%, and it has taken on a new twist. Now the gold giant is conducting a huge equity offering in order to pay down debt.

The company announced on Thursday afternoon that it has entered into an underwriting agreement with RBC Capital Markets, Barclays, and GMP Securities for roughly $3.0 billion. Barrick is signaling that this represents 163.5 million common shares and the sale is taking place at $18.35 per share. Again, this is after a 5.4% drop and shares fell another 2.5% down to $18.45 on the news.

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Barrick has a market cap of $19.4 billion and that is after the stock has fallen in half from its 52-week high. This 163 million shares or so is also representative of ten trading days of volume.

The gold giant has also granted the underwriters an over-allotment option of up to 24.5 million common shares. If the overallotment is exercised then the full share sale will amount to $3.45 billion. Net proceeds from the offering will be close to $2.9 billion after underwriting fees.

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Barrick's common shares outstanding will increase from about 1.0 billion shares currently up to about 1.16 billion shares after the offering. That figure would be 1.19 billion shares if the over-allotment option is exercised in full. The company's balance sheet strengthening will come from paying down debt. Some $2.6 billion will be used for this as follows:

  • Approximately $1.1 billion of the net proceeds of the offering to redeem the outstanding $700 million aggregate principal amount of 1.75% notes due 2014 issued by Barrick, together with the $350 million aggregate principal amount of 4.875% notes due 2014 issued by Barrick Gold Finance Corporation and guaranteed by Barrick.

  • Approximately $1.5 billion of the net proceeds of the offering to purchase notes in a proposed tender offer.

Barrick Gold managed to beat earnings expectations earlier in the day, but the share weakness is on the heels of a decision to temporarily suspend construction activities at Pascua-Lama. Barrick had some $23.829 billion in total debt as of September 30, and only $3.353 billion of that was short-term liabilities.

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UPDATE FRIDAY MORNING: Barrick shares are trading down over 6% at $18.16 on over 10 million shares right before the market open.

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