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S&P upgrades Barrick, Kinross Gold, revises Goldcorp outlook

Amid a favorable gold price environment, S&P Global Ratings upgraded its long-term corporate credit rating on Canadian gold miners Barrick Gold Corp. and Kinross Gold Corp., and revised its outlook on Goldcorp Inc. to stable, it said in separate March 22 releases.

The long-term corporate credit rating for Barrick was upgraded to BBB from BBB-, with a stable outlook, as the company's financial risk profile improved due to strong earnings and cash flow during the last two years.

The company is expected to generate and sustain credit measures near 2017 levels, led by favorable gold operating margins and free cash flow generation.

Barrick's plan to cut its debt to about US$5 billion by end of this year will allow it to mitigate the effect of fluctuation in gold prices and unit costs. "We continue to view Barrick as having the strongest business risk profile among its global gold-focused peers, at the higher end of its satisfactory assessment."

Meanwhile, the increase in copper prices is also expected to have a positive impact on the company's revenue and earnings. The stable outlook reflects the expectation that Barrick will sustain debt-to-EBITDA in the low 2x area over the next two years, S&P noted.

Kinross was upgraded to BBB-, from BB+, with a stable rating, as the rating agency expects the company to continue to maintain its low leverage over the next several years.

The company generated an adjusted debt-to-EBITDA ratio of 1.4x at the end of 2017, beating estimates, and is expected to generate leverage of about 2x over the next two years. The increase is expected due to the potential use of cash to fund project developments, mainly at the Tasiast and Round Mountain gold mines.

S&P said that Kinross' estimated leverage over the next two years is slightly above it assumed would be required for an upgrade. "However, we now believe the company is comparatively less exposed to a material weakening in its credit measures," the rating agency said.

The company's recent and prospective cash cost position also improved more than expected, and moved closer to the average of its closest gold-focused peers. In its evaluation, S&P assumed that Kinross will not pay dividends or fund acquisitions with cash or debt.

Meanwhile, the outlook on Goldcorp was revised to stable, from negative, with the BBB+ long-term corporate credit rating affirmed on the company. S&P said it expects the company to reduce its cash cost position "alongside a relatively favorable gold price environment," and keep its leverage under 2x over the next two years.

"In our view, Goldcorp's financial and business risk profiles have modestly improved since 2016 when we revised the outlook to negative," S&P said.

The rating agency expects the Vancouver-based miner to internally fund the development at its Penasquito gold mine in Mexico, Cerro Negro gold mine in Argentina, and its Musselwhite gold mine in Canada, and increase free cash flow in 2019 and 2020 on the back of higher gold and base metals output.

The company is not expected to take on large debt to make any acquisitions over the next two years. S&P also expects a 20% improvement in Goldcorp's all-in sustaining costs, gold production, and reserves over the 2017-2021 period.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found in the sources section.