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.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: