IT was no surprise Mark Bristow, CEO of Barrick Gold, delayed his retirement. After saying shortly after the merger of his Randgold Resources with Barrick that he might give himself a five-year stint atop the world’s second-largest gold producer, he quickly changed tack, in typical style.
“My position is still the five years, but I reserve the right to change that in the light of changing circumstances,” he said in February 2020. Asked for what those circumstances might be, he replied: “Pull the bits together yourself and you will know where I am going.” Wherever Bristow imagined himself taking Barrick, it would most likely be ambitious and barn-storming.
At the time of these comments, he had pulled back from the hostile takeover of rival Newmont Mining in favour of a joint venture, but the courtship with Freeport McMoRan over the Grasberg copper asset in Indonesia was yet to run its course. In the end, there was no transaction, but Bristow thought Barrick ought to have more reach nonetheless.
But as merger and acquisition in the gold sector has become harder to achieve, Bristow has pushed an alternative strategy of aggressive resource replacement and growth through exploration. He recently unveiled ambitions for Barrick to build mines in South East Asia, Japan and Canada. Bristow also dusted off the $7bn Reko Diq project in Pakistan after rehabilitating Barrick’s relationship with the government. That project will “come very quickly now,” he says.
“I would also like to build in Asia Pacific; that’s where the big elephants are still around. We will focus on Japan and we are working on a partnership with Ma’aden in Saudi Arabia,” as well as targets in Guyana and Colombia. “The Central African copperbelt is very interesting to me and we’ve got a full exploration base there now. It’s a lot of energy and I think we will grow this company in those regions.”
Had he stuck to his retirement plans, Bristow would be preparing to step down next year. Currently, there’s zero sign of that. “I’m very motivated in what I do,” says Bristow, commenting from his Mauritius retreat in an interview during June. He’s notionally on holiday but acknowledges that the work never truly stops, though there’s some time with family. “My job has changed a lot over the last 10 months. You grow stronger management.”
Following Bristow’s restructure of Barrick’s head office – no longer called a head office – there are now 12 executives who report directly to him. Then there’s a group of about eight others working at the group’s regional level. “So the executive pool I can draw from is materially more than in the past.”
I would like to tidy up the last of the legacy issues before I hand over.
Managers are also typically younger than before, another outcome of the group restructure since the Randgold merger – a company Bristow grew in painstaking fashion over 20 years. It had fewer resources and came off a base of almost zero. In fact, Randgold nearly went broke in its very early years. At Barrick, the capability is far, far greater, which accounts for the speed with which Bristow has been able to deal with its legacy issues.
The poster-child of Barrick’s mishandled legacy problems was the standoff with the Tanzanian government. The government had shut down the firm’s mines and threatened to confiscate the assets following a row over unpaid tax. A 50:50 joint venture company Bristow put in place – along with a helpful $300m one-off settlement in recognition of the tax dispute – reflected the structure and character of joint ventures Randgold concluded at its Loulo-Gounkoto in Mali, as well as at Kibali in the Democratic Republic of Congo. In both cases, the state has direct shares in the assets, which is supported by strong local procurement practices and, where possible, early payment of partner dividends. “Everyone has to benefit from mining,” says Bristow. “The industry has been very poor at investing in its people and very poor at sustainability. In a consumptive industry like mining, sustainability is key.
“I would like to tidy up the last of the legacy issues before I hand over,” he says, referring to North America, and specifically Hemlo in Canada. “It’s what I would call a strategic asset. We are very invested in it,” he says. “Pascua Lama is still unaddressed. That’s another.” Chile’s courts ordered the closure of Pascua in 2020, but Bristow has raised the prospect the orebody could host a fresh prospect, with an investment decision due in 2024.
He alludes to “potential” in Chile to “… reposition the project, or share more of it with the government, which wasn’t the case in the past. “We have engaged with the courts and are now waiting for the new government to settle in.” The relationship between Barrick and the government of Papua New Guinea, site of the Porgera mine, has improved following the formation of a new joint venture that solved a previous disagreement. But the relationship is delicate: Barrick is “wrestling” with the matter, says Bristow. “In these dynamic countries it’s best to go in at the ground floor and earn alongside your partner.”
Clearly, Barrick was not in an especially strong place ahead of the Randgold merger – hence the nil premium structure of the transaction, but its position proved to be an opportunity. “Barrick really went off for a while. If they hadn’t, there wouldn’t have been the logic for the transaction with Randgold,” he says.
The merger was the catalyst to a spate of industry consolidation that continues in the current moment. In 2021 alone, 70% of all deals among the world’s 40 largest companies were in gold, according to a report by PwC. More are on the way owing to low levels of industry debt and a high gold price.
“We expect gold deals to continue as larger companies look to expand their portfolios and the middle tier looks to consolidate,” the auditor said in its June report, ‘Mine’. Yet data also shows M&A in the sector is becoming expensive, and less liked by shareholders.
Australian research outfit GMR says investor reaction to gold M&A since the 2019 merger of Barrick Gold and Randgold Resources – which was viewed favourably – has tended to deteriorate. Unlike the nil premium structure of the Barrick-Randgold deal, later M&A has involved premia (see graph). The proposed all-share takeover of Yamana Gold by Gold Fields resulted in a one fifth decline in the value of the South African firm a week after its announcement.
Bristow thinks the current spate of merger and acquisition activity is “driven by circumstance” whereas the merger between Barrick and Randgold began with a series of conversations between Bristow and John Thornton, Barrick’s chairman, as early as 2016 and were based on a fundamental match-up between a large but dysfunctional company and another with quality management but in need of derisking, especially given where the gold price was at the time. “The 2019 transaction was value-creating because gold was about $1,400/oz. The market was in a bad way in 2018. Everyone was in trouble.”
Owing to a lack of exploration investment in the past, gold reserve replacement is increasingly difficult to achieve. “The opportunities are sparse if you want to focus on world-class assets,” says Bristow. Cost pressure is also complicating the business case for merger and acquisition in the gold sector, as well as uncertainty over the direction of the gold price which, at a trading band of about $1,800 to $1,900/oz, is cyclically high.”
In the view of Joe Foster, a portfolio manager at US-based asset manager Van Eck’s gold funds, the gold industry would benefit from more consolidation in the junior sector. Commenting on the firm’s gold juniors ETF fund, Foster declares himself disappointed with their recent performance: “If we are to stay invested, stock performance has to improve. We need to see companies do more to attract investors to the sector. They must raise their profile and a sure way to do that, in our view, is through consolidation.”
Barrick really went off for a while. If they hadn’t, there wouldn’t have been the logic for the transaction with Randgold.
Analysts at BMO Capital Markets think this is going to happen. “M&A to gain momentum this year in the small and mid-cap space,” it said in a report. “While some companies bemoan a lack of appropriate targets through entrenched management or valuation disconnects, we have seen those companies that have completed transactions create real value, improve asset diversification and attract new potential investors through increased size.”
Bristow comments that consolidation is “never a bad thing in our industry” but he also recognises that it’s being done in a different scenario to the ‘merger of equals’ as per Barrick’s union with Randgold. Companies have their backs to the wall owing to the inflation, although ultimately this provides another reason to embark on M&A.
“We think that cost inflation for most gold miners could easily be double-digit in 2022,” said Michael Janolen, a research analyst for Merrill Lynch, earlier this year. “We think that gold majors may seek to replace older, higher-cost assets, effectively ‘bolting on’ mid-tiers with a single, quality, lower-cost asset.”
Says Bristow: “This is a cyclical business regardless of what happens in the world. And so you need good assets. We’ve got six of the world’s twelve true tier-one gold mines: we’re in a good place.”