Barrick basks in glow of a very good summer
Toronto miner sees ‘fun’ six months with stock up 50 per cent since June
TORONTO Barrick Gold Corp.’s chief executive Mark Bristow visited the mining giant’s Toronto headquarters on Monday to announce second quarter earnings, and to take a victory lap on what’s shaping up to be a good summer.
“It’s a been a fun six months,” Bristow told the assembled group of analysts, bankers and others.
“I’m glad to share with you the enormous progress our teams have made.”
Barrick recently negotiated to purchase its troubled subsidiary in Tanzania, trimmed overhead and made other cost-saving moves that helped propel its stock up 50 per cent since June.
“That’s a lot of boxes ticked,” he said.
Having taken over in January after Barrick acquired his former company Randgold Resources Ltd., Bristow has managed to fix several lingering problems, including the empty CEO office.
He’s also benefited from several fortuitous events including a runup in the price of gold, all of which have helped make Barrick the world’s “most-valued” gold mining company with US$31.4 billion of market capitalization.
It contrasts with Newmont Goldcorp, its longtime rival, which had been “most valued.”
It’s been hit with a string of bad news, including a fire at one of its mines, a 50-day labour protest and other challenges. It’s smaller for the moment, if only by a narrow margin, at US$30.9 billion in market capitalization.
Newmont did not make anyone available for comment.
In the past year, both companies completed transformational multi-billion dollar mergers — with Newmont acquiring Goldcorp in April and Barrick taking over Randgold in January — which catapulted them ahead of the rest of the industry in terms of their size and gold production.
Now, the two companies’ businesses are more intertwined than ever: They jointly operate the world’s largest mining complex in Nevada, which produced four million ounces in 2018 and mines in the Dominican Republic and Australia.
Over the years, there has been talk of mergers between the two companies, most recently in March, when Bristow’s Barrick launched a hostile bid, which the company dropped when Newmont agreed to consolidate its assets in Nevada in a joint venture. Although they signed a standstill agreement that prevents any takeover attempts for two years, in some ways the competition has only intensified — and Barrick has been able to show investors the fruits of its merger so far.
“When you’re looking at the gold space you’re talking about a relative trade between Newmont Goldcorp and Barrick,” Andrew Kaip, a BMO analyst who covers both companies, told the Financial Post.
In July, when he resumed covering both companies, he placed a buy rating on Barrick and a neutral rating on Newmont.
Both companies have risks, Kaip said. After all, Barrick operates in the Democratic Republic of Congo and other parts of the world with serious risk of political change could interrupt any of its mines any day. Newmont has 90 per cent of its production in the Americas and Australia, but will need time to deliver returns.
Ultimately, Kaip said his team decided Barrick is the better immediate investment because as gold prices rise, it has costs under control and can deliver immediate value.
Newmont acquired assets in the Goldcorp transaction that may pay off yet, but “it’s going to take Newmont a couple (of ) quarters,” Kaip said.
Newmont is in the midst of a leadership transition with chief operating officer Tom Palmer moving into the chief executive and president role.
He explained to analysts on an earnings call in late July, that Newmont needs to apply its “rigour” to some of Goldcorp’s mines.
“To be frank… there was not the work done on exploration, there wasn’t the work done on development, and that’s absolutely fundamental in either an open pit or underground mine,” Palmer told one analyst in July on an earnings call about Goldcorp’s former operations.
I’m glad to share with you the enormous progress our teams have made.
Still, he said the company is on track to achieve 40 per cent of the $365 million in annual cost synergies it predicted will result from its merger.
Meanwhile, Barrick’s stock is up 16 per cent to US$18.11 since gold broke through US$1,400 per ounce in late June as the company has rallied on positive news.
On Monday, it announced 1.35 million ounces of gold production, on track for as much as 5.6 million ounces of annual production — less than Newmont but it’s predicting lower costs, and it posted free cash flow of US$55 million.