- Partnership expected to increase cash flow over long term
- Work to digitize the mining company will begin at Cortez mine
The biggest gold producer is joining forces with an even larger tech giant to drag the traditional world of mining into the new millennium.
Barrick Gold Corp. signed a deal with Cisco Systems Inc. for a “digital reinvention” of its global operations, the Toronto-based miner said in a statement Monday. The partnership -- struck between Barrick Executive Chairman John Thornton and Cisco Chairman John Chambers -- will start with the Cortez mine in Nevada, with an initial investment estimated at $100 million through next year.
The goal is to cut costs and wring additional value out of existing mines. For example, Barrick expects a flow of real-time data will allow it to predict when equipment is likely to need maintenance and to adjust mine plans quickly as conditions such as prices, weather or ore grades change. The partnership will increase cash flow over the long term while reducing environmental impact and increasing transparency with governments and communities, Thornton said.
“We mean to create value and push the boundaries of our industry in entirely new ways,” he said in the statement.
It marks the latest step in Barrick’s journey under Thornton. The banker-turned-miner has overseen one of the industry’s biggest cost-cutting and debt-fighting efforts after a slump in prices eroded earnings and sent leverage metrics soaring. His stated goal is to make Barrick one of the best companies in the world this century, in any industry.
Barrick’s debt is down 43 percent to $9 billion from a 2013 peak, with most of the heavy lifting done under Thornton’s tenure. Over the same three-year period, the miner’s all-in sustaining costs fell to $782 an ounce from more than $900, while its workforce was cut in half to about 14,000 through a combination of job reductions and $4.2 billion in asset sales.
The company has said its goal is to reduce all-in sustaining costs to $700 by 2019. The technological changes will push that number even lower, Thornton said. “Yes, we can certainly go below $700, although we don’t know how much below," he said in an interview after the announcement.
In July, Barrick President Kelvin Dushnisky said the miner could be debt free within a decade on higher gold prices, lower costs and additional asset sales.
The Cisco deal could set the stage for future acquisitions, Thornton said. “I wouldn’t say we’re going to gobble up everybody. But we’re going to intelligently invest in places where we can make good money."
After five straight annual declines, Barrick shares have more than doubled this year, beating the average gain among major bullion producers as gold rose 25 percent. The company’s shares advanced 2 percent at 3:26 p.m. in Toronto Monday.
“Certainly anything that has the potential to increase efficiency and decrease costs should be taken positively, but I think the market will want more detail and more specifics before ascribing any particular value to this initiative,” Michael Siperco, an analyst with Macquarie Capital Markets, said by telephone from Toronto.
The industry is already using remote-controlled scoops and shovels in underground mines, as well as software and real-time data to model deposits, manage mills and predict when maintenance will be required, Siperco said. “What they could be talking about is putting it all together and then potentially taking it to the next level, whatever that may be.”
Chambers said the arrangement with Barrick is “a level up” from other such deals. “It’s the first time that we’ve done it with this type of commitment from the very top about changing the whole industry,” he said in an interview.
Cisco, too, is looking to redefine its business as its flagship networking hardware products are challenged by software and cheaper alternatives.
“Any company that fails to reinvent itself by harnessing digital technology will soon be left behind,” Chambers said in the statement, adding that Cisco’s technologies and network of partners will allow it to “extend the frontiers of the natural resources industry.”
Chief Executive Officer Chuck Robbins, who took the San Jose, California-based company’s helm in July 2015, has been working to rekindle growth by shifting toward software-based networking, security and management products, which customers increasingly prefer because they’re less expensive and more versatile.