The cost to insure the debt of Barrick Gold Corp. (ABX) surged to the highest in four years after Moody’s Investors Service said it may downgrade the company’s bonds.
The review of Barrick’s Baa1 debt rating was prompted by a legal challenge to its $8.5 billion project in the Andes, Moody’s said in a statement. Toronto-based Barrick is the biggest producer of the precious metal with $7.5 billion of bonds.
Credit-default swaps to protect Barrick bonds from default for five years jumped 11 basis points to 214, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. The contracts last surpassed 214 basis points in March 2009.
A court victory by indigenous communities to halt construction on the Chilean side of the Pascua-Lama project poses “challenges” to Barrick and “uncertainty with respect to the cost and timing” of the project, Moody’s said.
Credit swaps, which typically fall as investor confidence improves and rise as it deteriorates, pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Gold futures in New York had a 9.3 percent drop April 15, the biggest decline for a most-active contract since March 17, 1980. Bullion lost ground as the U.S. recovery gained momentum, the dollar rose and Federal Reserve policy makers signaled they may scale back on stimulus, curbing demand for gold as a haven.
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