‘Asset quality always overrides jurisdiction’: ‘Obsession’ with world class assets leads Barrick Gold where others fear to tread
Barrick Gold Corp. chief executive Mark Bristow pledged to continue exploring in West Africa and Latin America, even as a “rising tide of resource nationalism” has scared away other mining companies who see too much risk there.
“If you want to focus on world class assets, which is our stated objective, and my obsession, asset quality always overrides jurisdiction,” Bristow told the Financial Post on Wednesday when the company reported its third quarter earnings.
You can’t go to a country as a foreign investor, and not give a return to your host country when you’re mining a national asset
Barrick CEO Mark Bristow
The reason why so many mining companies run into problems in emerging economies is because they’re unwilling to share benefits from mining with the local community, he said.
“People come to the emerging markets and think they’re doing everyone a favour, making money for their shareholders,” said Bristow. “You can’t go to a country as a foreign investor, and not give a return to your host country when you’re mining a national asset.”
During the quarter, in July, Bristow engineered a deal to buy out the minority stake in its subsidiary Acacia Mining Plc, which had been in a years-long spat with the Tanzanian government over taxes and economic benefits of its mine there.
Almost immediately, he struck a deal to pay $300 million to Tanzanian authorities and to split economic benefits from the mine more evenly.
He said the experience shows that attentive management can operate safely even in countries considered high risk.
Still, he also said the company is underrepresented in Canada. Currently, it operates one mine, Hemlo in western Ontario, which the company is transitioning from an open pit to an underground mine and where it has offered voluntary “separation agreements” to workers.
“It was a big debate when we did the due diligence on Barrick on whether it was profitable in any form,” Bristow said, adding that it is profitable now.
The comments came as Bristow marked his third quarter as chief executive, having joined in January through the US$6 billion merger with his former company Randgold Resources, creating the world’s second largest gold producer.
Barrick reported an increase in quarterly revenue to US$2.7 billion, up from US$1.8 billion in the third quarter of 2018 ,and it upped its year over year quarterly gold production by 13.6 per cent to 1.3 million ounces.
Debt, net of cash, declined 14 per cent to US$3.2 billion, which Bristow characterized as a comfortable amount. It reported net income of US$2.4 billion, and free cash flow was US$502 million.
The company also announced it increased its quarterly dividend by a penny to five cents, a 25 per cent jump. Bristow said that while the company aims to make further increases in its dividend it remains mindful of its cash, and never wants to be “beholden to the market for money.”
Barrick’s stock jumped 2.35 per cent on Wednesday afternoon to $22.27.
The company also unveiled its plan for the next five years, projecting gold production will hold steady at between 5.1 million and 5.5 million ounces per year.
“We’re in the business of making money not producing gold,” Bristow told the Financial Post. “My criticism of the mining industry is people always get hung up with production rather than profits. They both start with ‘p’ but they’re very different.”
So while production will remain basically flat, the five-year plan projects costs will decline from around US$950 to US$850 by 2024, even as it plans to sell some mines.
First on the list for sale is Kalgoorlie, an open pit mine in Australia, jointly operated with Newmont Goldcorp Corp., which Bristow said is less desirable because Barrick wants to operate all its mines.