[miningmx.com] – BARRICK Gold may be the second company to favour the “less is more’ approach adopted by Gold Fields CEO, Nick Holland, who last year threw the towel in on the company’s South African assets and unbundled them, creating Sibanye Gold.
Or is Barrick the third? We’ll never finally know as AngloGold Ashanti has been elusive about whether it, too, proposed an unbundling similar to Gold Fields, but had it refused by the South African government.
In any event, Barrick Gold CEO Jamie Sokalsky’s view that “… being more profitable is better than being bigger…”, aired at the Bloomberg Canada Economic Summit earlier this week, raises the possible end of the geo-politically agnostic gold company; that is, a company in which US-based gold mines sit cheek-by-jowl with mines in Ghana or Tanzania.
It also raises the prospect of a growing, diverse and vibrant mid-cap sector, provided sellers can find buyers.
Speaking at the Bloomberg conference, Sokalsky commented it was “a buyer’s market”. He, therefore, didn’t think there would be much merger and acquisition activity among gold producers notwithstanding pressure in the industry to sell (or shut) non-core (loss-making) assets.
Gold Fields’ Holland said in questions at his company first quarter results earlier this month that he thought buying assets wasn’t that easy either. Valuations don’t support deals through shares, while there would have to be excellent value for companies to use precious cash resources, especially when shareholders would prefer the cash paid to them.
“It’s hard in this market to look at big deals,” he said, but added, somewhat interestingly: “If there was good value we could do a $500m to $600m deal but we would need to see demonstrable value. We wouldn’t do it for a strategic reason”.
“Given our mid-tier status [Gold Fields is ranked as the eleventh largest gold company by market capitalisation following the unbundling of its mature South African gold mines] we should be fishing in that pool,” Holland said. “There are a lot of companies in distress,” he said.
This brings us back to the mines Barrick’s Sokalsky says are in distress. According to a company statement in February, the company is looking to divest of its 50% stake in Kabanga, a nickel mine in Tanzania, and its energy unit.
An analyst quoted by Bloomberg News, George Topping of Stifel Nicolaus in Toronto, said Barrick Gold’s Australian assets could also be on the block as the company sought to thresh out its 27 mines.
The item that caught the eye, however, is the growing view that large gold companies should divest of geographically risky assets such as mines in Papua New Guinea or, more likely, Africa. It’s a view being pushed by John Paulson, the gold investor of Paulson & Co.
Barrick Gold has already gone this route spinning out African Barrick, a company that hasn’t been able to extract better value from the African assets that was first hoped.
At the end of the day, though, it’s the quality of asset that matters, and the quality of management, not the country. Randgold Resources has assets only in Africa, some of them quite risky areas, but the company attracts a high rating and the share’s capital appreciation over the years has been excellent.
Perhaps it’s as Mark Bristow, CEO of Randgold Resources, is fond of saying: “once a dog, always a dog’ referring to the importance of quality gold ounces, particularly when the gold price isn’t playing ball.
