May 22 (Bloomberg News) — Barrick Gold Corp. (ABX), the biggest miner of the metal by sales, is considering shrinking in size as the company focuses on returns over production volumes, Chief Executive Officer Jamie Sokalsky said.
“Being more profitable is better than being bigger,” Sokalsky said yesterday at the Bloomberg Canada Economic Summit in Toronto. “If we divested of some of those smaller, higher-cost assets and came down to a suite of assets that are long-lived and lower-cost and more valuable, I think that ultimately that can be a better investment proposition.”
Gold producers are trading at their cheapest in more than a decade relative to the broader market, according to data compiled by Bloomberg, as investors flee the industry amid rising mining costs, project delays and asset writedowns.
Sokalsky, who took over as CEO of the Toronto-based company 11 months ago, is reviewing growth plans and pursuing asset sales as gold trades at a two-year low and is poised to end a rally that has extended for 12 straight years.
Barrick, the owner or part owner of 27 mines, rose 2.1 percent to C$20.29 at 9:43 a.m. in Toronto. The company closed at a two-decade low on April 17, losing its position as the top gold miner by market value to Vancouver-based Goldcorp Inc. (G) last month.
Possible Sale
It makes sense for Barrick to shrink, said George Topping, an analyst at Stifel Nicolaus & Co. in Toronto. Selling the company’s Australian assets would be “a good place to start,” he said. Barrick is working with Bank of America Corp. and UBS AG on a possible sale of Australian mines, two people with knowledge of the matter said last month.
“At the 8 million-ounce level, with 26 or so mines it’s very difficult to focus,” Topping said yesterday by phone. “In order to have better managerial control you’re better off with fewer but much larger assets, preferably in the same north-south time zones.”
It’s easier to manage a company with fewer assets, said Sokalsky, 55. The location of mines also has taken on a greater importance because of an increase in so-called resource nationalism, in which governments seek a bigger slice of revenue. After a dispute with the Dominican Republic, Toronto-based Barrick on May 8 agreed to amend a lease governing the Pueblo Viejo mine in the country.
Political Risk
Investors including hedge-fund billionaire John Paulson have also pushed for some gold producers to consider separating assets that are located in riskier locations. Johannesburg-based Gold Fields Ltd. (GFI) in February spun off most of its assets in South Africa, which has been beset by labor disputes and seen a political debate about nationalizing mines.
“Five to 10 years ago a mine in Papua New Guinea might get the same valuation as a mine in Canada in the market place, and I think that’s changed considerably,” Sokalsky said. “Differentiating the portfolio from a geopolitical standpoint can also change the dynamic of how valuable your assets are.”
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