Gold decline uncovers miners’ debt woes

Barrick said it is postponing production at its Pascua Lama mine in Chile, where costs have ballooned to $8.5 billion from $5 billion.

By Alistair MacDonald
Wall Street Journal 

The recent plunge in the price of gold is exposing the large debt loads that big gold miners, such as Barrick Gold Corp., took on during the boom years.

Gold miners are scrambling to cut costs, sell assets and shore up finances, as credit-rating services talk of debt downgrades that threaten to add to the already increasing costs of future borrowing.

In the second quarter, the price of gold posted its largest quarterly decline since the start of modern gold trading. Gold fell 23% in the period to close at $1,223.80 a troy ounce on Friday. Already, the price of gold doesn’t cover the overall costs of many gold miners. Plummeting share prices have made financing the shortfall through equity markets hard.

“If prices below $1,300 are sustained for more than two quarters, without significant changes to spending, I would expect we could see ratings downgrades,” said Donald Marleau, an analyst at Standard & Poor’s Ratings Services.

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