Barrick Gold’s chief admits lessons learnt from recent setbacks

June 2, 2014 3:30 pm

Barrick Gold’s chief admits lessons learnt from recent setbacks

By James Wilson, Mining Correspondent

Barrick Gold built its case for a merger with Newmont Mining on the savings the world’s two largest gold miners by output could extract from their joint holdings in Nevada. Now Barrick’s chief executive says that the miner has “moved on” from the aborted merger attempt but insists Nevada remains central to its plans.

Jamie Sokalsky played up the potential for Barrick to grow on the back of its own gold discoveries in the US state, and says that even without a merger Barrick will still look for ways to co-operate in Nevada with Newmont. “There are some things we could do on the ground,” he says.

Mr Sokalsky also adds the Canadian group has “learned some hard lessons” from recent setbacks such as its shelved attempt to build its huge Pascua-Lama gold mine in South America and will now take a more gradual approach to growth. The change of emphasis shows how miners have been forced to temper their ambitions because of the weak gold price.

Barrick and Newmont, the number two gold producer, halted merger talks in April amid acrimony. The merger was predicated on creating what Barrick estimated as $1bn of annual synergies through combining their holdings in Nevada, the centre of US gold mining, while spinning off mines across Africa and Asia into a separate company, which Mr Sokalsky was expected to have led.

Some investors were dismayed by the idea that Barrick – which accumulated large debts during a phase of expansion as the gold price soared until last year – was ready for a further “land grab” by combining with Newmont. The merger idea was revealed months after Barrick had to issue fresh equity to reduce debt.

Mr Sokalsky, who has led Barrick since 2012, denied the merger would have been at odds with the more cautious course the company says it is steering since the gold price fall.

“It was a unique opportunity with large synergies and portfolio optimisation and that was in line with what we had been doing,” he says. “We can move on with the same strategy. It was not a must-have.”

Barrick is still highlighting its options in Nevada and is expected next year to decide on how to proceed with its large discovery at Goldrush, near its Cortez mine in the state. For Barrick, stung by costly overseas misadventures, holdings in mining-friendly jurisdictions such as Nevada are a way of lowering political risk.

“It was a unique opportunity with large synergies and portfolio optimisation and that was in line with what we had been doing,” he says. “We can move on with the same strategy. It was not a must-have

Mr Sokalsky says Barrick is making a “sea change” in its approach to big projects after problems with Pascua-Lama, a gold project straddling the Chile-Argentina border that has run vastly over budget. The project is being ramped down and shelved until the gold price recovers.

“Some day this will be one of the best gold and silver mines in the world but right now we have to solve some challenges on the regulatory and legal side, and that is going to take some time,” Mr Sokalsky says. Smaller, “staged” projects now make more sense, he adds.

Barrick’s net debt of $10.5bn is “absolutely manageable”, with $1bn due in the next four years, he says. “We have a lot of levers to pull.”

Mr Sokalsky was chief financial officer before becoming chief executive but his role at the company is set to come under scrutiny, not least because the merger plan with Barrick would apparently have seen Gary Goldberg, Newmont’s chief executive, take over that role at the combined group.

Barrick also has a new executive chairman in John Thornton, the former Goldman Sachs banker who took over from founder Peter Munk in April. Mr Thornton is expected to take a significant part in setting strategy and has said he sees a case for further diversification at Barrick, which already mines copper as well as gold.

Whether and how to diversify would be an “ongoing discussion . . . the objective is to make the most amount of money,” says Mr Sokalsky. “I am very much looking forward to being CEO of the company going forward and helping to move it forward. I love this company, I have been at Barrick for 20 years.”