MOVING MINES
Almost everything is on the chopping block for Barrick as gold’s value plunges,
Just about everything is for sale or on the chopping block — except for a handful of core mines — as Barrick Gold Corp. fights to stay atop the gold mining industry amid crippling debt and a tanking bullion price that has dragged its stock down to 26-year lows.
“If you have interested parties, be in contact with us please,” company co-president Kelvin Dushnisky said with a slight chuckle when an analyst asked on Thursday’s conference call if the miner’s equipment was up for sale at its now dormant Pascua-Lama site in Chile.
The Toronto-based gold miner said it will now target spending cuts across its operations at $2 billion before the end of 2016 — a move that tacks an extra $1 billion of cuts onto a previously announced target to lower expenses and improve productivity.
Barrick, which also reported a second-quarter loss, said it has already identified $1.4 billion of potential cuts across the business from operating expenses, capital spending and corporate overhead.
“We are scrutinizing every aspect of the business,” said Barrick’s new chief financial officer Shaun Usmar.
The world’s top gold producer is also slashing its dividend by 60 per cent and putting several U.S. mines up for sale in what it calls a “relentless” effort to further reduce its costs amid worries about the tumbling bullion price, which has slumped to $1,085 (U.S.) an ounce from this year’s high of $1,295 in January.
Global gold miners are scrambling to cut costs and sell or shutter mines as the yellow metal’s price has slid 42 per cent from an all-time high in 2011 of $1,895. The slump is part of a continuing bear market for most base and precious metals as demand slows in China and investors in mining firms head for the exits.
“Gold has taken a beating in the last few months, and Barrick is a company in transition,” said Morningstar analyst Kristoffer Inton. Company chairman John Thornton, who didn’t join the analyst earnings call, has stressed he wants to take Barrick back to its roots as a smaller company with fewer mines and micromanagers. He took the reigns from company founder Peter Munk last year, and replaced nearly every executive at the Toronto headquarters.
“They’re putting their stamp on the company and streamlining it,” Inton said.
The mining behemoth said it is also considering a number of expressions of interest for the purchase of its non-core assets in Nevada and Montana as it anticipates further weakness in the price of gold during the last half of this year.
Barrick says all these moves “will strengthen the resilience of our portfolio in a lower gold price environment, while positioning us to deliver stronger margins when gold prices recover.”
Some experts say gold’s value may drop further if, as many expect, the U.S. Federal Reserve hikes interest rates this fall. That could prompt investors to ditch gold in favour of U.S. dollars.
Investors seemed to like the moves the company is making, as shares soared as much as 7 per cent Thursday.
As of Wednesday, Barrick had lost 38 per cent of its value over the last month alone — the most among major gold stocks — as its U.S. mines bear the full brunt of the price slump, while mines elsewhere have gotten some relief from weaker local currencies. “New management has made a strong effort to reset street opinions, but the share price has set new lows,” Mackie Research analysts Barry Allan and Ryan Hanley wrote in a research note Thursday, raising their recommendation to buy from hold.
“We see fundamental value creeping in even, though it is a bit early yet to gauge (Barrick’s) success on restructuring,” said the note.
The company has sold $2.45 billion in assets so far this year. With files from Star wire services