Mark Bristow, CEO of Barrick Gold Co. looks on during an interview with Reuters at the African Mining Indaba 2022 conference, in Cape Town, South Africa, on May 11, 2022.SHELLEY CHRISTIANS/Reuters
Barrick Gold Corp. CEO Mark Bristow cannot believe rival miners are contemplating expensive mergers and acquisitions all over again, after the industry suffered through tens of billions of dollars’ worth of M&A writedowns when the last commodity supercycle crashed.
“The mining industry generally are world champions in investing in the peaks, and going bust in the troughs,” he said in an interview.
Barrick ABX-T was one of the worst-hit miners when the last supercycle crashed a decade ago, writing down US$20.7-billion between 2013 and 2015 under previous leadership.
Mr. Bristow took over in 2019 through an all-share, no-premium merger with Randgold Resources – which he ran – and lately he has preached organic growth. “It’s crazy that my colleagues in the industry find [this strategy] difficult,” he said.
The trouble for Barrick is that its own strategy isn’t winning shareholders over, at least not yet. Rising costs forced the miner to cut its dividend when it reported earnings Wednesday, and Barrick also took a US$1.6-billion writedown comprised of multiple charges. The largest was worth US$950-million after tax on Barrick’s Loulo-Gounkoto project in Mali, a charge Barrick attributed to inflationary pressures and higher interest rates.
Despite the current struggles, Mr. Bristow doesn’t believe chasing M&A is the answer. “This industry doesn’t invest in its future, and then it has to go to the last resort of buying assets,” he said on a conference call with analysts.
While some miners argue that adding resources through M&A will attract more investors, because companies’ market valuations will be higher, Mr. Bristow isn’t having it. “We can’t see much strategic benefit in just getting bigger for bigness sake,” Mr. Bristow said. “We don’t agree that it builds a better company with more gravitas.” In fact, “it adds more risk.”
In the past six months, Gold Fields Ltd. GFIOF has tried to buy Yamana Gold YRI-T at a 34 per cent premium, but was rebuffed by shareholders, and last month Newmont Corp. NGT-T announced a US$16.9-billion all-share bid for Newcrest Mining Ltd. NCM-T at a 21 per cent premium.
There is also speculation that global behemoths such as BHP Group Ltd. BHPLF and Rio Tinto PLC RIO-N, which are flush with cash after banner years, will splurge on megadeals.
Barrick’s new billion-dollar writedown is the miner’s largest annual impairment charge since 2015. Back then, the company was still grappling with years of disastrous deal-making and capital expenditures, particularly at its Pascua Lama project in Argentina.
Asked about the writedown, which is on a project that was acquired through Randgold, Mr. Bristow stressed in the interview that it was a non-cash charge that does not change Barrick’s current cash flows. He added that Randgold was purchased using shares and for no premium. By contrast, Barrick bought Equinox Minerals Ltd. in 2011 for $7.3-billion in cash and later wrote down billions of dollars from the deal.
Barrick is also struggling with a blemished safety record following multiple deaths at its projects in recent months. On the call with analysts, Mr. Bristow attributed the catastrophic casualties to bringing in new contractors. “We didn’t invest enough time in getting to know our contractors,” he said.
Barrick’s shares have more than doubled from their 2015 lows, but the company’s stock is still down by more than 50 per cent from the record high set a decade ago. The shares lost 3.3 per cent on Wednesday to close at $23 in Toronto.
Turning Barrick around is a tough slog for Mr. Bristow, but it has its bright spots. Barrick’s debt rating was recently upgraded by Moody’s Investors Service to A3, a rather high level, and the ratings agency praised Barrick’s US$5-billion in cash reserves and ample free cash flow. The gold price is also hovering around US$1,850 per ounce, which is the same level it hit during the commodity supercycle.
“It is frustrating,” he said in the interview, referring to investors’ resistance to buying Barrick’s shares in droves again. But “in the fullness of time,” he believes his strategy will be well received. “You’ve got to build trust,” he said. “We are rebuilding a brand.”
One way is he trying to do that is by expanding Barrick’s copper production. Copper is a key metal in electric vehicle production, so the investment thesis for it is quite strong at the moment.
Last year, 90 per cent of Barrick’s revenues came from producing gold. By contrast, Australia’s Newcrest Mining is expected to derive 25 per cent of its revenues this year from copper.
Mr. Bristow said Wednesday that he knows Barrick needs more copper exposure, but it’s a tricky situation. “There are no easy buys for copper anywhere,” he said in the interview. He has tried to acquire before, by expressing interest in Freeport-McMoran Inc.’s copper-gold mine in Indonesia, only to be rebuffed. Today the metal is in such high demand that there are no deals to be done.
Instead, Barrick is trying to build a new project, with 50 per cent ownership of the Reko Diq copper-gold development in Pakistan.
As for gold. Mr. Bristow is banking on Nevada, where Barrick operates a joint venture with Newmont. “Nevada hasn’t seen real exploration in a long time,” he told analysts. “We believe the greatest value comes from discovery and development.”