Barrick Gold Bets Once More on Nevada After Zambian FlopLiezel Hill
Barrick Gold Corp. is betting growth will come from Nevada, where the world’s largest producer scored its first big success three decades ago, after more than $9 billion in writedowns and cost overruns in the past two years on projects from the Andes to Zambia.
Chief Executive Officer Jamie Sokalsky said yesterday the Toronto-based company doubled the estimated resources at the Goldrush deposit in Nevada last year, even as it sells assets and cuts spending elsewhere to revive shares that slumped 24 percent. Barrick is also pushing ahead with Pascua-Lama, a gold and silver mine on the Chile-Argentina border it expects to open next year.
“The priorities for the company, once we finish Pascua-Lama, really are focused on Nevada,” Sokalsky said yesterday on the company’s earnings call. “We have one of the most exciting exploration finds in recent memory, the Goldrush discovery, to ultimately add to this Nevada production in the future.”
Sokalsky’s mantra yesterday was steady and safe. The CEO, who took the job June 6, said the company has no plans to build more new mines and is looking to sell lower-return assets including its energy unit and the 50 percent it owns in a nickel project in Tanzania.
Shareholders reacted positively to Sokalsky’s moves to do “anything that will increase shareholder value” yesterday, lifting the stock 2.3 percent in Toronto.
‘Looking for Safety’
“Investors are definitely looking for safety,” Adam Graf, a New York-based analyst at Dahlman Rose & Co., said yesterday in a telephone interview. Nevada is “the only place that they’ve been able to execute successfully if you think back to the last several years.”
Fifteen analysts recommend buying Barrick’s shares, while Graf is among 13 analysts that have a hold rating, according to data compiled by Bloomberg.
Barrick declined 1.9 percent to C$31.82 at the close in Toronto. The shares have fallen 8.6 percent this year, compared with a 13 percent decline in the 30-company Philadelphia Stock Exchange Gold and Silver Index, and a 2 increase in the S&P/Toronto Stock Exchange Composite Index.
Barrick’s shares rose yesterday after the company reported adjusted fourth-quarter earnings that beat analysts’ estimates and Sokalsky said the company has received interest from “serious buyers” for its assets.
Barrick is optimistic the sales process for its energy unit will be successful and the company has held talks with potential buyers for its 50 percent stake in the Kabanga nickel project, Sokalsky said in an interview. Xstrata Plc owns the rest of Kabanga.
Barrick’s two biggest mines in Nevada are Goldstrike, which became the company’s flagship asset after it was acquired in 1986, and the Cortez operations. Nevada accounted for more than 40 percent of Barrick’s production last year and represents about a third of its total 2012 reserves, the company said yesterday.
Barrick mentioned the name of the state 17 times yesterday on the earnings call, compared with just once a year ago.
“In an environment where you see so much concern about geopolitical risk around the world and resource nationalism, I think sometimes people lose sight of the fact that we have these huge core assets in Nevada,” Sokalsky said in the interview. “That’s a real competitive advantage for us.”
Analysts and investors have been more focused abroad in recent years, as the company spent C$7.3 billion ($7.25 billion) to acquire Equinox Minerals Ltd., owner of a Zambian copper mine, and Barrick poured billions of dollars into two Latin American projects.
While Pueblo Viejo, Barrick’s joint venture with Goldcorp Inc. in the Dominican Republic, started production in August last year, the company delayed the expected start date for Pascua-Lama by about a year and raised the cost forecast for the mine twice in 2012.
Barrick yesterday maintained its latest cost range of $8 billion to $8.5 billion for the mine, which was forecast to cost no more than $3 billion when Barrick, then led by Aaron Regent, approved its go-ahead in 2009.
It makes sense that the company would look to Nevada for its future growth, after operational and political difficulties elsewhere, said George Topping, an analyst at Stifel Nicolaus & Co. in Toronto.
“That’s a focus that investors want,” Topping said in a phone interview. “If you compare the difference: let’s go and build Pascua-Lama on the very top of the Andes straddling two countries that don’t really like each other, or let’s build it in Nevada where it hardly ever snows.”
Barrick reported a surprise fourth-quarter net loss after taking $4.2 billion in impairments, including $3 billion at its Lumwana copper mine, which was acquired in the Equinox deal. Barrick is the latest mining company to take a multibillion-dollar impairment charge as producers grapple with rising costs and reassess expensive deals.
Kinross Gold Corp., the third-largest Canadian gold producer, said Feb. 13 it took a $3.09 billion writedown on its Tasiast mine in Mauritania. The company took a $2.49 million writedown on the same project a year earlier.
Kinross, which acquired Tasiast when it bought Red Back Mining Inc. for about C$8 billion in 2010, also rose yesterday after it reported earnings excluding one-time items that beat analysts’ estimates. The shares gained 5.4 percent in Toronto, the most since Nov. 8.
“The market is perceiving that Barrick and Kinross have taken their medicine,” David West, a Vancouver-based analyst at Salman Partners Inc., said yesterday by phone. “They are trying to move in the right direction, they are trying to increase their margins, they are trying to look in-house and grow organically.”
By focusing on Nevada, West said, Barrick is “getting back to the basics.”