John Thornton looks on Barrick Gold Corp. as a patient finally ready for discharge from hospital and determined to abandon the short living that landed it there.
Barrick Gold Corp has returned on top as Canada’s best-performing stock and also the world’s most valuable gold company
Barrick Gold Corp. has surged being Canada’s best-performing stock as a two-month rally within the rare metal gives added lift towards the company’s turnaround efforts.
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In his first on-the-record interview in almost a year, the chief chairman of the world’s largest gold producer touched on all the hot-button issues – from his perspectives on acquisitions and disposals towards the sprawl of his board to his own controversial pay packet.
Criticized for lacking industry experience, the 62-year-old banker-turned-miner could be forgiven if he chose to gloat: on his watch Barrick has transformed from market casualty to darling, culminating having a peer-beating 82 per cent stock surge this season. A big-picture guy, he speaks in entire paragraphs from a mile above ground in which the way forward is clear: it’s time for Barrick to obtain from the defensive, albeit cautiously.
“When you’re appearing out of intensive care, for both the good of your health insurance and for purposes of reputation, it’s vitally important to be clear and transparent by what you’re doing,” he said in Ny on Wednesday. “All those things argue for going slowly.”
Deal Discipline
Thornton’s stated goal would be to make Barrick one of the best companies on the planet this century, in any industry, meaning beginning to consider acquisitions. Senior executives have been running through deal scenarios to “exercise the muscles.”
To make sure, the company is “nowhere close” to an acquisition despite the fact there aren’t any shortage of opportunities amid what had, up to now, been a four-year downturn for gold. “The very first thing we do absolutely must be successful,” Thornton said.
What the company can’t afford is yet another fiasco. This year, Barrick expanded its copper footprint using the $7.3-billion acquisition of Equinox Minerals Ltd., swelling its debt up to US$15.8 billion in 2013. The offer was the only biggest component that resulted in an extended and painful restructuring. In September, Barrick said it would close the unit.
Since 2013, Barrick has cut assets, jobs and costs and adopted a decentralized model more similar to a tech firm than the usual miner. Debt is down to US$10 billion and the company is looking to halve that in the medium term. Asked if he would consider expanding beyond gold once the company opens its wallet, Thornton said the question is “in any meaningful time frame academic: the reply is no.”
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Asset Sale
Until now, Barrick’s divestment program has excluded its best assets, but Thornton suggested not every preferred properties are untouchable. “Should you define a core asset like a first quartile asset – whatever that definition is – obviously you never want to sell those,” he said, before adding: “Barrick’s so-called core assets, they’re not every equal.”
Thornton is unapologetic concerning the company’s quarterly dividend, which peaked at 20 cents in 2013 and it is currently two cents. “Priority one is obtain the debt down. Until we’re inside a healthier budget, we’re not going to touch the dividend.”
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Pay Solution
Investors can get imminent changes on the most contentious issue of Thornton’s brief tenure: executive pay. At last year’s annual general meeting, more than 73 per cent of shareholders voted against a non-binding pay resolution, largely spurred on by his US$12.9-million package for 2014.
“Whenever we said last year we’ll fix this, we’ll fix it. In fact we’ve fixed it. We haven’t actually announced it – but we’ve fixed it.” Investors will be to discover the details in a regulatory filing on March 24.
If this news means he will be earning less, the cash he’s made on Barrick’s recent stock rally may lessen the sting. Thornton owns about 2.Two million shares, 160,000 which were purchased at no more December, before gold rebounded and Barrick catapulted higher. “I’m still a buyer,” Thornton said. The day after the interview he earned good with that promise, buying 300,000 shares.
On Monday, Barrick gained 2.5 percent to $18.70 at 10:08 a.m. in Toronto.
Also on Thornton’s to-do list is handling the transition to a leaner board. As of Barrick’s AGM this April, it’ll have 14 directors, with eight joining since he became chairman. Anything over 12 is too large, he says.
What he can’t manage, of course, is price. Barrick considers itself “gold price agnostic,” and runs more conservative price models than its two biggest competitors Goldcorp Inc. and Newmont Mining Corp. Thornton says his goal would be to guarantee shareholders a secure return, with a healthy dividend and an occasional “windfall” depending on market swings.
When all has been said and done, nothing fascinates Thornton that can compare with China. As chairman of Goldman Sachs Asia, he rebuilt the firm’s Chinese business in the late nineties. These days, he’s a professor at Tsinghua University and flies to China monthly.
Both Thornton and Barrick President Kelvin Dushnisky happen to be effusive in their praise of Zijin Mining Group Co., the organization that Barrick created a partnership at the Porgera mine in Papua New Guinea. He talks of the relationship according to mutual respect and benefit, and including a heavy mentoring component from Barrick.
‘Trust Me’
As a case in point, Thornton says he warned Zijin against wading in and purchasing Porgera outright, telling executives: “Believe me, when you go see it, it’s likely to scare the hell out of you.” Instead, he offered to let Zijin learn the ropes gradually with Barrick management in place. At some point, not soon, he expects Zijin will buy the remaining Half.
In the meantime, “they’ve been everywhere, they’ve seen everything,” from the Barrick empire. Thornton believes, someday, Zijin might help turn Barrick’s greatest problem child, Pascua Lama, into a success by spreading the financial and political risk. The giant project in the Andes has been shuttered since 2013, when a Chilean court accepted an injunction filed by indigenous groups over environmental concerns.
Thornton is quick to dismiss the question of whether Zijin or any Chinese investors could take a considerable interest in Barrick itself. Although headquartered in Canada, its best assets are in Nevada, near military bases, and that he believes the Committee on Foreign Purchase of the United States would reject any Chinese bid.
As for a takeover attempt nearer to home, Thornton highlights that Barrick has regained its place as the best gold producer, making it unlikely anyone could afford it.
“Nothing we’re doing is perfect for the objective of shining ourselves on the market. Like every public company of course, obviously, if a person wants to walk in here and set a large price up for grabs we’d have to take it seriously. But I see zero evidence of that.”
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