Barrick’s quality over quantity play

The world’s largest gold miner, Barrick Gold, is considering shrinking its footprint as the company shifts focus towards returns rather than production volumes, chief executive officer Jamie Sokalsky said.

“Being more profitable is better than being bigger,” Sokalsky said this month at an economic summit in Toronto.

“If we divested of some of those smaller, higher-cost assets and came down to a suite of assets that are long-lived and lower-cost and more valuable, I think ultimately that can be a better investment proposition.”

A plunging gold price, rising mining costs, project delays and asset writedowns have investors running for cover, Bloomberg reported.

Sokalsky, who took charge of Barrick just 11 months ago, is reviewing the company’s growth strategy and in line with moves from other major miners, including BHP Billiton and Rio Tinto, has flagged asset sales could be on the cards.

With gold trading at two-year lows and some analysts predicting it will plunge further, it makes sense for Barrick to lighten its load.

George Topping, an analyst at Stifel Nicolaus & Co. in Toronto said selling the company’s Australian assets would be “a good place to start”.

Reports emerged last month that the company is already looking to offload three gold mines in Western Australia in a bid to reduce debt and fight-off a credit rating downgrade.

“At the 8 million-ounce level, with 26 or so mines it’s very difficult to focus,” Topping said.

“In order to have better managerial control you’re better off with fewer but much larger assets, preferably in the same north-south time zones.”

Sokalsky said it’s easier to manage a company with fewer assets.

He said the company is also “actively” looking at selling other assets, but has declined to pinpoint which ones.

Barrick won’t resort to a “fire sale,” he said.

The current market has made asset sales increasingly difficult compared to a few years ago, Sokalsky explained that lower metal prices and equity valuations and the general idea that the gold sector is “anti-M&A,” isn’t making the task easier.

A sentiment Northern Star Resources managing director Bill Beament has echoed, this month saying investors will continue to leave Western Australia unless drastic measures are taken.

"Conditions are a lot worse than people in this room actually realise at the moment," he said.

“There has been a massive exodus, particularly from the US funds, out of the gold sector and I think we have lost touch with our investors."

But Sokalsky remains confident, saying he doesn’t think gold’s hero run is over, expecting the price will eventually rise again to a new record.

Central bank gold purchases, high government debt levels and a lack of new supply coming online will boost the metal’s price, he explained.

A rally back to $1,700 to $1,800 an ounce in the next 12 months is probably “achievable,” he said.

But Neil Charnock, an economist at leading gold investment and trading company Gold Oz disagrees, instead predicting the price of gold will drop further as the market faces what he calls a ‘correction’ phase that is expected to last for at least 12 months.

“My gold targets are at around US$1100 and possibly as low as US$900 with a major influence of a strong USD over this correction period,” he told Australian Mining.

Sokalsky is one mining’s ‘new blood’ leaders, taking charge at a time when miners are attempting to forge a path that cuts operating expenses and delivers increased value to shareholders.

Rio’s newly appointed Sam Walsh and BHP’s Andrew Mackenzie are also embarking on similar journeys, moving to slash costs and offload underperforming assets.

But despite Sokalsky’s efforts Barrick shares continue to tumble, falling about 42 per cent this year.

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