Barrick Gold Sees Nevada Growth After ‘Reset’: Corporate Canada

May 27, 2014 5:23 pm ET

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May 27 (Bloomberg) -- Jamie Sokalsky has spent most of his tenure as Barrick Gold Corp.’s chief executive officer retrenching and fighting fires. Now that the smoke is starting to clear, he’s refocusing on opportunities for growth.

The world’s biggest gold producer plans to expand in Nevada, where it got about 40 percent of its gold last year, Sokalsky said last week.

“Now that we’ve really reset the company, it’s time to talk about the future,” Sokalsky said in an interview on a Nevada hillside overlooking Goldrush, one of the projects at the top of the company’s investment plans.

Since Sokalsky, 57, took over in June 2012, Toronto-based Barrick has shed more than a quarter of its mines, raised $3 billion in a share sale and slashed its spending plans, while wrestling with a falling gold price. The company’s average costs in the first three months of 2014 fell to the lowest in at least two years, according to data compiled by Bloomberg.

While those austerity plans were overshadowed last month by news the company failed to buy its biggest competitor, Newmont Mining Corp., Sokalsky says those talks are “finished” and Barrick is focused on its strategy as a standalone entity.

Sokalsky is trying to move the company in the right direction even as he faces challenges including a high debt level, said Robert Gill, who helps manage C$3.4 billion ($3.1 billion) at Lincluden Investment Management, including Barrick shares.

‘Make Sense’

“The company has been focused on fighting a lot of fires in the past,” Gill said yesterday by phone. “It would make sense that you would want to focus on some of the new opportunities going forward.”

Barrick’s plans in Nevada include working on a study for its Goldrush discovery, examining the potential for deeper mining at the nearby Cortez Hills mine and considering an expansion at the Turquoise Ridge mine. The focus is on “high- quality” production, and Nevada will probably become an increasingly important part of the company’s total gold output, Sokalsky said.

Barrick also is investing more in early-stage projects owned by exploration and development companies. In February, the company acquired a 70 percent interest in the Spring Valley project in Nevada, near its Goldstrike mine, that was owned by Midway Gold Corp., and signed a March agreement with another explorer, Coral Gold Resources Ltd., to earn 75 percent of the Gold Ridge project.

Organic Growth

While Barrick is open to acquisitions, the company can grow by investing in assets it already owns, Sokalsky said.

He also said Barrick is still interested in looking for ways to cut costs by cooperating with Newmont in Nevada, where the companies run multiple operations near each other.

In the longer term, Barrick’s strategy will be guided by John Thornton, who took over as Barrick chairman last month when founder Peter Munk retired. Thornton said in December he’s interested in investment from China and is open to more diversification into metals other than gold.

The last two years have been among the most tumultuous in Barrick’s 31-year history. The company fired CEO Aaron Regent in June 2012 after the board said it was “disappointed” by the share price performance and promoted Sokalsky, then chief financial officer, to replace him.

Losing Value

Barrick’s shares, which have declined 60 percent since Sokalsky took over as CEO, fell 4 percent to C$17.30 at the close in Toronto.

Barrick also faced delays at its Pascua-Lama mine on the Chile-Argentina border and increased the cost estimate, eventually to as much as $8.5 billion, before suspending the project in October. The company had to renegotiate tax agreements for another new mine, Pueblo Viejo in the Dominican Republic, and said early last year that the Lumwana copper mine, acquired in an unpopular acquisition in 2011, had disappointed because of high production costs.

Sokalsky’s mantra since taking over has been that returns must drive production, not the other way around. He began a review of the company’s operations, saying that mines that didn’t meet certain requirements would undergo adjustments or be closed or sold. Those efforts accelerated last year after gold dropped the most in more than three decades.

Lower Costs

Sokalsky has sold mines in Australia, divested the company’s energy unit and closed an operation in Peru.

Barrick now has 19 mines compared with 27 last year, and the company’s forecast production this year would be the lowest in nine years. At the same time, so-called all-in sustaining costs fell to $833 an ounce in the first quarter, $100 lower than a year earlier, and 21 percent down from $1,061 in the second quarter of 2012, when Sokalsky was appointed, according to data compiled by Bloomberg Industries.

More still needs to be done to reduce debt and get rid of underperforming or high-cost mines, said Michael Siperco, a Toronto-based analyst at Macquarie Capital Markets.

“The market needs to see more progress on de-leveraging, increased management focus on core assets, and demonstrable, sustainable increases in free cash flow,” he said in an e-mail.

Barrick will continue to seek cost cuts and may sell more assets while looking for ways to improve its reserves, resources and productivity, Sokalsky said.

“We’ve certainly done a lot of what we would have liked to have done,” Sokalsky said. “Now we are in a position -- because we do have a stronger balance sheet and a much stronger and more agile company -- to really talk more about the opportunities that we have.”