My latest article on Sharps Pixley website
Where the leader goes, others will follow! Arguably Barrick Gold is the company other top gold miners aspire to emulate, so will its proposed merger with Randgold Resources to buy in an alternative management strategy see other top gold miners follow suit in terms of management direction? If the proposed merger goes ahead and the ‘Randgold way’ is successfully implemented at what will again be the world’s top gold miner, the answer is probably yes!
Barrick was very much at the forefront of the production growth at any cost strategy which worked well in a continuing rising gold price scenario, but once gold peaked in 2011 and started to come down from its highs, the company was left with some hugely expensive capital projects on its books and a mountainous debt position. Most of its capital projects were too far advanced to be halted, although the horrendously costly, and technically complex Pascua Lama development straddling the Chile/Argentina border was able to be stopped, but only after expenditures of around $6 billion had already been sunk into the project. When gold was strong and rising mega producers like Barrick could handle costs like this and the banks were still falling over themselves to lend money accordingly.
But when the gold price plateaued and started to fall it was another story altogether. Profits and any free cashflow were substantially reduced and big institutional shareholders who had been perfectly happy with the growth at almost any cost strategy pressured Barrick into top management changes and some fairly drastic cost cutting and debt reduction programmes. So it was with other major god miners too. They had been pursuing similar strategies to Barrick and found them selves in similar predicaments. In that period from 2012 to 2015 virtually all the gold major CEOs were ousted and replaced as were many others in exec management positions. The miners entered a period of unmatched austerity from which few have recovered to any meaningful extent. The industry as a whole has substantially reduced debt, has cut back drastically on capital projects and has cut, or reduced, various management tiers. But with a lacklustre gold price stock p[rices have continued to slip and shareholders with clout are not happy…..
But all the while one tier one gold mining company with operations all in the unfavoured regions of West and Central Africa continued to grow without incurring massive debt and managing at the same time to sharply increase its dividend payments by sticking to strict new mine investment parameters…..
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