A small, U.S. hedge fund wants to break up Canadian mining giant Barrick Gold, saying its collection of mining assets is spread out over too broad of a geographic area, which has led to a disappointing shareholder return.
Mike Morris, co-founder of Two Fish Management, which is exposed to Barrick Gold through its options holdings, has written to Barrick CEO Jamie Sokalsky and other board members recommending that the North and South American assets of the mining company be split from the African and Australian Pacific holdings.
“Each distinct business unit has unique political environments, geologies, operating costs, reserve profiles, profitability, capital intensities and growth prospects,” he says in the letter.
Barrick Gold’s stock has fallen by nearly 50 per cent in the past year, as the gold mining company took massive writedowns and cut its dividend. The price of gold has been falling, but in addition, Barrick’s gold production per share fell 28 per cent from 2003 to 2012, Morris said.
Two Fish Management has released a 78-page presentation detailing exactly what the Toronto-based company is doing wrong and what it should do to dig itself out of its hole.
Its key recommendations include:
- Refocus the Barrick portfolio on North and South America.
- Spin off or sell African Barrick, Australia Pacific and Global Copper business segments.
- Sell non-core assets such as Donlin Gold & Kabanga Nickel.
- Appoint new board members including at least one mining engineer and geologist.
- Revise executive compensation to reflect return on invested capital and shareholder returns.
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