John Thornton is taking a page from the late Peter Munk’s playbook in recognizing the value of copper in Barrick Gold Corp.’s portfolio. But, he made clear to the gold miner’s employees this week, he also intends to avoid the founder’s mistakes.
The world’s largest gold miner almost destroyed itself with a top-of-the-cycle foray into copper in 2011. Executive Chairman Thornton is considering copper-growth options once again, but this time with Chinese partners.
“The question for us on copper is, ‘Can you take the copper assets, combine them with another party, or even two parties and build a first-tier global copper company over time?’ ” Thornton told employees Wednesday. “Now in answering that question, the likelihood that your partner in that endeavor will be Chinese is very high.”
Under Munk’s leadership, Barrick acquired Equinox Minerals Ltd. at the height of the commodity super cycle. The acquisition ballooned its debt to $15.8 billion by 2013. The stock is still down more than 70 percent from its 2010 peak.
“The acquisition of Equinox might have been if not the worst, one of the five worst acquisitions in history,” Thornton said at the internal meeting, a transcript of which was posted on the company’s website. And yet, forming a copper company out of Barrick’s assets, might make sense — especially with Chinese partnership — given copper is valuable and often found alongside gold, he said.
Barrick owns half of the Zaldivar copper mine in Chile and Jabal Sayid copper asset in Saudi Arabia, as well as Lumwana in Zambia. Its Chinese partnerships include joint ventures with Shandong Gold Mining Co. and Zijin Mining Group Co.
In a wide-ranging discussion, Thornton outlined his broader long-term strategy for Barrick to employees who, under a sweeping share-ownership plan, are also investors.
The plan includes increasing its portfolio of so-called tier 1 assets over time, and gradually shedding anything that’s not tier 1 or deemed to be “strategic.” The former Goldman Sachs Group Inc. executive defined tier 1 assets as mines that can produce at least 500,000 ounces of gold a year, have a mine life of more than 10 years, and are in the best half of the cost curve.
“It turns out that there are only 10 to 15 in the world. Now Barrick happens to have, let’s say, four of them. No other company has more than two,” Thornton told employees. “Obviously, if you have six it’s better, if you have eight it’s better, if you have 10 it’s better.”
Source: Bloomberg
