The good times are about to roll for Barrick shareholders if the gold price stays at current levels around $2,300/oz with CEO Mark Bristow commenting the group is in a position to benefit from a “positive double whammy”
“We have an expanding margin and, as we ramp up our production, we grow the margin further because we bring down the costs,” he commented
Bristow likened Barrick’s situation to that of the former Randgold Resources back in 2011 when the gold price took off with the big difference then that management’s top priority was to “fix the balance sheet”.
He commented, “we have already done that at Barrick. Then – something that we have been talking about for a while but no-one has been hearing – is that whilst our peer group are ‘wanna-be’ copper miners we have been actively building our copper production profile.
“Once we deliver the full Reko Diq we will be the same size in terms of our copper production profile as Anglo American. We will be at more than 500,000t a year.
“So the bid you have just seen from BHP for Anglo really puts the size of our ambition in copper into perspective.
“So our cash flows are not just gold-driven. Our copper will be a significant contributor. Our feasibilities are being run at $3/lb copper which is substantially under the current price. You hear a lot of the copper miners saying ‘we need a better copper price to unlock our development portfolios’ which is another way of saying ‘our current projects are not viable.’
“All of Barrick’s projects are viable at $3/lb so this is an exciting time for us.”
But not all of the money that could pour into Barrick is going to get paid out in dividends because of capital expenditure requirements while Bristow intends using some of it to buy back the group’s shares which he considers to be badly undervalued at current levels.
“Of course shareholders are going to benefit from these big margins. We have a clearly defined dividend policy. If we get more money in we pay it out and we have a formula over how we pay it out. Maybe we might have to jack that formula up a bit if we got more and more.
“But it will be a relatively balanced payout because we also have capital requirements. We are gearing the big Reko Diq project and it’s a balancing act which is driven formulaically by our capital allocation strategy.”
Bristow said he also intended doing something about the underperformance of the Barrick share price which – like those of its peers – has lagged badly behind the rise in the price of physical gold.
“My first focus will be on buying back the shares until we can get the equity to start performing. Right now the share price is trading at a discount to our NAV and we should be trading at a premium to NAVso we have some work to do,” he commented.
Bristow attributed the underperformance of the gold equities to extreme investor caution over the uncertain state of the global economy as well as the very high rate of inflation recently experienced by the mining industry.
He added that restoring investor confidence in gold shares would require “building confidence in the margins.”
“Once you restore that confidence then it makes sense for investors to at least partially rotate out of the metal because you don’t get a yield on the metal. As soon as the market starts to believe in the potential yield of the equities then that will drive the equities up. That’s my view.”
Turning to the unexpected jump in the gold price over the past month Bristow commented, “what this is showing is the devaluation of the dollar and the massive de-dollarisation of balance sheets across the globe.
“You have a massive decrease in the value of paper money. People do not trust paper currencies as much as they used to. Interest rates should be at 10% or higher but if you do that you will collapse the western world economies.
“What is tempering it is that you do have relatively high interest rates but despite this the gold price has gone up. “
