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No ‘instant gratification’ at Barrick as CEO Mark Bristow confronts rising costs

"We want to have the same cash flow as in the past, just off a lower grade base," 
Barrick CEO Mark Bristow said Wednesday in Toronto.
We want to have the same cash flow as in the past, just off a lower grade base," Barrick CEO Mark Bristow said Wednesday in Toronto. - Nick Kozak - Postmedia News/File

Production at the world’s second-largest gold miner is set to increase as much as 23 per cent to between 5.1 and 5.6 million ounces this year. But costs are also up

Mark Bristow is playing a new role.

After spending decades finding and building his own mines, the South African geologist who built a widely admired gold company in sub-Saharan Africa that was taken over by Barrick Gold Corp. in January for $6 billion, is now trying to wring profits out of gold mines that someone else found and built — and then operated for years, sometimes making decisions that he cannot undo.

Bristow is about four months into his job as chief executive of Barrick, and production at the world’s second-largest gold miner is set to increase as much as 23 per cent to between 5.1 and 5.6 million ounces this year. But costs are also up: share slid about 1.18 per cent to close at US$12.57 Wednesday in New York after it reported all-in sustaining costs would rise from US$806 per ounce in 2018 to between US$870 and US$920 an ounce.

Sitting in his 37th floor office at Barrick’s Toronto headquarters Wednesday, on a brief stopover for the company’s annual meeting and earnings report, the globetrotting chief executive, who has stops scheduled in Nevada, Paris, Barcelona and various other destinations before he returns to his home near Jackson Hole, Wyoming, took stock of the challenges facing his new company.

“We want to have the same cash flow as in the past, just off a lower grade base,” he said.

Bristow said Barrick spent years “high-grading” its mines to pay down its heavy debt load. Now, in an overhaul at many mines, it is looking at lower grades to extend the lifetimes of its mines and searching for cost “efficiencies.” He repeated his desire to sell some mines, and said the company is still refining its five-year guidance.

“If you’re a fund manager or a finance minister, don’t look to us for instant gratification or easy pickings,” Bristow said in a presentation of first quarter results on Wednesday laced with a references to “legacy challenges” and neglect of certain mines.

He added, “The stakeholders who reap our rewards are those who share our long term vision, the ones who stick with us.”

In an interview with the Financial Post, Bristow insisted that John Thornton, the executive chairman who led the company during the past few years while CEO position was vacant, had been correct to mine the highest grade portions of the company’s mines.

That allowed the company to reduce its current debt to $3.6 billion without issuing equity that would have diluted shareholders, he said.

Still, he acknowledged that the “cost side” had been neglected before he arrived. “A lot of these assets were neglected,” Bristow told the Financial Post.

“They were just driven to produce cash and you know mining is a consumptive industry, if you don’t reinvest in your future, you run out.” He told analysts that Porgera, the company’s 45-percent owned mine in Papua New Guinea and where Barrick is currently seeking to renew its mining license, had been “quite a neglected asset.”

The mine has been the subject of numerous human rights complaints and on Tuesday, at the company’s annual general meeting, Bristow fielded exactly one question — about the company’s plans to address accusations of sexual assault by mine security, house burnings and chemical spills at and around the mine.

Bristow dismissed the speaker — Catherine Coumans of Mining Watch Canada, who has visited the mine site repeatedly — saying she comes every year like “an echo.”

But the following day, he told analysts that the company has to work hard there to secure its social license.

There are also challenges on the business-side: In February, he launched a hostile bid for Colorado-based Newmont Mining Corp., the world’s largest mining company, and only dropped the bid when the two companies struck an agreement to form a joint venture in Nevada.

He had promised the agreement would create US$500 million in annual cost savings through synergies.

On Wednesday, one analyst asked if it was still on track.

“There have been some synergies that are not going to be as good as we thought,” Bristow said, “but at the same time, we’ve discovered new opportunities … (so) we’re comfortable getting to our target.”

Between meetings with investors in Europe and visits to Papua New Guinea, and also the Dominican Republic — where Barrick is planning an expansion of its Pueblo Viejo mine at a cost of more than US$1 billion — Bristow, who also recently became a grandfather, has numerous issues on his mind and trips planned.

“It’s fun, so it is relaxing,” Bristow said.

He also said he hopes to raise US$1.5 billion from mine sales, but in the next breath, castigated the rest of the gold industry for destroying value, leaving a question about what companies could potentially buy its mines unanswered.

Bristow also acknowledged Barrick has had its own problems with mines that may not create value. About a decade ago, it announced plans to build a mine on the Chilean-Argentine border.

Although Barrick spent billions of dollars on the project, he said it has serious legal and environmental challenges and may not even be economic.

“I want to know on what basis does it create any value? Because that project was announced when gold was (at) 1,600 (US dollars per ounce),” said Bristow. (Gold traded at US$1,281 on Wednesday.)

But a moment later, he smiled and pointed out Barrick had just issued a four-cent dividend on the quarter.

“One of the things I must tell you is we are going to make so much money in this company,” he said, adding, “You can equate what we’re trying to achieve here at Barrick to the sort of heyday era when South African gold companies were growing and people were making enormous amounts of dividends.”

Copyright Postmedia Network Inc., 2019

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