Speculation Mounts Over Barrick’s Future
A large-scale merger and a split are options being floated for the company, while a potential activist campaign looms
The future of Barrick Mining Corporation (NYSE: B) is the subject of increased media speculation following former CEO Mark Bristow’s shock departure in September.
Initially, speculation focused on a potential tie-up of Barrick and Newmont Corporation (NYSE: NEM) or the consolidation of their joint venture, Nevada Gold Mines (NGM).
BMO Capital Markets analyst Matthew Murphy noted in late October that the pair last discussed a combination in early 2019.
“We believe a premium takeout valuation is undoubtedly possible in the near future, but with Newmont largely focused inward, we consider it a low probability scenario at the present time,” he said, also pointing to Newmont’s looming leadership change.
“The best argument for Newmont buying Barrick would be if it sees Barrick as vulnerable given the recent CEO change, it is also interested in consolidating Pueblo Viejo and Norte Abierto (Barrick JVs) or is interested in growing in copper.
“We believe the worst argument for a near-term purchase of NGM or Barrick is that Newmont has consistently maintained it is focused on internal assets and share repurchases.”
Split on the cards?
Despite the search for a permanent leader continuing, interim Barrick CEO Mark Hill made his near-term intentions for the company clear when handing down its third quarter results last week.
Hill has initiated a “bottom-up” operational review, focused on consistent delivery and safety improvements and announced plans to refocus Barrick to North America and its most important asset, NGM and the Fourmile project.
On Tuesday, Bloomberg reported Barrick had restructured, bringing its Pueblo Viejo mine in the Dominican Republic into its North American division, while consolidating its Latin American and Asia Pacific operations into one.
Citing an internal memo from Hill, chief operating officer North America Christine Keener has left the company and been replaced by Tim Cribb, Wessel Hamman has replaced Kevin Annett as chief financial officer North America, and George Joannou has been appointed as chief development officer.
The Reko Diq copper-gold project in Pakistan will have its own leadership structure.
Hill’s commentary last week, combined with the changes, has intensified speculation that Barrick may look to demerge its assets outside North America.
Reuters reported last week that the board of Barrick was considering a split into two separate entities or an outright sale of the African assets and/or Reko Diq, citing four sources close to the company.
Canaccord Genuity analyst Carey MacRury said there were multiple ways to restructure the company, including a split with a shareholder distribution, asset sales or mergers, but either way, there was value to surface.
“We note Barrick is trading at 0.62x NAV versus its closest peers Newmont at 0.76x and Agnico at 0.97x,” he said.
A look at a potential split
“While we see how a Barrick Americas company could be appealing to many investors, we believe a breakup would be premature,” MacRury said.
“Many investors believe that reorganising the company along geopolitical lines would bring an immediate re-rate.
“We think it would help, after all, Barrick has had a litany of tough disputes over the past few years across Tanzania, PNG, the DRC, and now Mali.”
Applying a 1.0x NAV to Barrick Americas and 0.6x to the remaining assets would deliver a 42% potential uplift, according to Canaccord’s estimates.
“Or to put it another way, putting a 1x multiple on Barrick Americas effectively implies zero value for the rest of the company. The math is compelling,” MacRury said.
“That said, we believe a large part of Barrick’s share price underperformance has stemmed from consistently missing targets over the years and with gold production declining every year since the Barrick/Randgold merger.”
Barrick Americas, which would comprise stakes in NGM, Pueblo Viejo, Veladero in Argentina and Zaldivar in Chile, as well as the Fourmile, Pascua-Lama and Norte Abierto projects, would produce 2.4 million ounces of gold and 96 million pounds of copper per year, generating US$7.3 billion of mine EBITDA.
Barrick International would produce 900,000oz of gold and 370Mlb of copper per year, generating US$3.6 billion in mine EBITDA.
Elliott building stake
On Tuesday, Reuters reported that activist investor Elliott Investment Management had built a major stake in Barrick, citing an unnamed source.
The Financial Times reported the stake could be worth at least US$700 million.
“We would guess that Elliott’s primary objective is getting full value for Barrick’s North America assets – and whether this is via a split, a sale, or something else, remains to be seen,” Citi said on Tuesday.
The Money of Mine podcast speculated that Elliott’s pick to run Barrick could be turnaround specialist Mick McMullen.
McMullen was most recently the CEO of MAC Copper, which was acquired for US$1.5 billion by Harmony Gold Mining Company (JSE: HAR) last month.
He previously led Detour Gold and Stillwater Mining.
McMullen appeared on the podcast last week and laughed off a question about Barrick.
“It’s a very interesting company with a lot of interesting attributes of things that need to be fixed and some unhappy shareholders,” he said
“So, who’s to say what happens there?”