National Post (National Edition)
Barrick seeks 'critical mass' expansion drive
Company faces ‘existential’ questions
TORONTO• Bar rick Gold Corp.' s sudden expansionist desires are driven by the same concerns as the rest of the industry — it’s getting harder to find gold and more expensive to mine it, according to John Mccluskey chief executive of rival Alamos Gold Inc.
Barrick is pursuing a US$17.8 billion hostile bid for Newmont Mining Corp. in a deal that would combine the two largest gold companies into a firm of unparalleled size.
If successful, it would have numerous consequences for the rest of the gold industry, potentially laying the groundwork for future asset sales and consolidation, and also potentially pulling new generalist investors into the high-risk, high-reward precious metals sector.
Mccluskey said he thinks Barrick, and its new chief executive Mark Bristow, is concerned about the company’s gold reserves — meaning the amount of yellow metal left at its mines — and wants to increase its size so that it can comfortably sell off less-impressive mines without cutting its profitability.
“They’re trying to essentially get enough critical mass so they can afford to divest what they know in their portfolio are non-core assets,” said Mccluskey.
“It doesn’t help Mark Bristow’s case when he describes those non-core assets as second-tier or garbage because then the companies he’s hoping will buy those, they have to turn around to their investors and explain why they want to buy garbage,” he added.
Barrick, with $29 billion in market capitalization, is multiple times larger and in some ways a different beast than Alamos, which has $2.5 billion in market cap.
Mccluskey, who once went salmon fishing with Bristow in B.C., says beneath the “gruff ” persona, the Barrick CEO is actually a “teddy bear,” and a great mining executive.
Nonetheless, Mccluskey believes Barrick faces two major “existential” questions like the rest of the wider industry: Where will its gold come from in the next decade or so, and how will it deal with the rising costs?
Those two questions gen- erated ample discussion throughout the Prospectors & Developers Association of Canada conference in downtown Toronto, which drew tens of thousands of mining investors and executives for several days before it ended on Wednesday.
On Sunday, Mike Ferguson, head of mining studies at S&P Global Intelligence, said data about new gold discoveries suggests the industry has yet to recover from the great recession. “Clearly the industry did very well in the 1990s and even through 2008. But since then there’s been a dearth of new big deposits (discovered), and … there is going to be a shortfall in new gold discoveries.”
On Tuesday, Bristow flew to New York to meet Newmont’s chief executive Gary Goldberg to discuss a joint venture in Nevada, where both operate major mine complexes.
Barrick’s Bristow has said he could find $4.7 billion in synergies in Nevada over the next two decades, and even large Newmont shareholders have said they believe a JV makes sense.
Newmont said the initial meeting was productive, although its board has rejected Barrick’s hostile bid, and said it plans to move forward with its own $10 billion merger with Goldcorp Inc., expected to close in April.
Mccluskey, of Alamos, said he thinks Barrick — which produced around 4.5 million ounces of gold last year, but has in the past produced as much as 8.6 million ounces of gold in a year — wants to merge with Newmont in part to increase its reserves.
“They’ll have long enough reserves to justify walking into a pension fund and saying you can invest in us and sleep softly at night, and everything is going to be fine,” he said. “I don’t think they feel that way now.”