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This is an edited and condensed excerpt of comments by Peter Munk, co-chairman of Barrick Gold Corp., at the company’s annual meeting in Toronto Wednesday.
Gold price and resource nationalism change the industry
A year ago, the fundamentals for Barrick Gold were brilliant. Results were exceptional, optimism about gold prices was universal, we were riding high, our financial rating was the highest in the industry, we were the unquestioned global leaders. Barrick at that time was looking forward to the next 12 years and to opening up two of the most spectacularly unique gold mines, Pascua-Lama and Pueblo Viejo.
The fundamentals today could not be more different. Our two mines are both in trouble. Our write offs and capital commitments have multiplied. Gold itself is under attack. So there is pessimism about the industry.
And there is ever-growing resource nationalism. It’s understandable. You’re sitting there, the new president of a small country, and you’ve just been elected, you’ve got serious issues with your budget, you’ve got two choices: keep on taxing the people or go after that big multinational huge global corporation with billions of dollars in assets and say: “Now hold on. We signed this contract with you a few years ago. We wouldn’t have signed that contract had we known that gold was going to $1,500.”
Miners are increasingly squeezed after they’ve been conned, they’ve been attracted, they’ve been incentivized to come in because a country had a huge gold deposit, or copper deposit, or iron deposit. Once the mine is built they say, “It’s our iron, our gold.”
Nationalism, resource nationalism , new governments, punitive governments, more aggressive regulatory systems driven by a whole cadre of trained and highly competent lawyers—mostly from the USA—who create lawsuits. They follow the American paradigm.
When Pascua-Lama started, that mine was meant to cost about $3-billion. And then it became $3.5-billion, and then $5-billion, and then $8-billion. No doubt management has something to do with it, but we’ve never had an overrun like that. What’s happening is, this enormously altered public perception of environmental concern—NGOS, human rights, water quality, air quality etc. etc. etc.—are put one on top of the other and governments react.
So while we may have shot ourselves in the foot, we could have been doing nothing. So why did we do it? Over the past 20 years Barrick shareholders saw their value increase 40 times. Shareholders benefited because we were able to grow. We did what we believed was our responsibility to generate more shareholder value, so we pushed the button.
Did we know then that the same governments who practically begged us to invest in remote areas to provide jobs, education, foreign exchange, taxes would be changed and a new government would say: Who are these foreigners? Why would they take our gold away from us?
These are entirely new problems. The industry has changed.
When gold goes from $600 to $1,200, hey, if you’re a shareholder of the company you expect more than twice the payout. You covered your overhead with $600, the next $600 belongs to me. Nonsense.
It’s a different ballgame when you’ve got a new government that wants to penalize you, when you’ve got new governments in many many countries—we have 25 mines in 21 countries—and many of those mines are endangered by unilateral action.
For the rest of this article, click here: http://opinion.financialpost.com/2013/04/24/a-new-gold-ballgame/