Barrick Gold Corp. chief executive officer Mark Bristow seems determined to drive consolidation in Canadian mining through sheer force of will.
If just a few institutional investors are willing to join the endearingly blunt CEO’s crusade, then long-predicted takeovers among the country’s mid-tier gold plays may finally come to pass.
Mr. Bristow banged the drum for deals last month at the World Gold Forum, a widely followed annual event in Denver that drew even more eyeballs by going virtual this year. Departing from the usual script for CEOs at conferences – talking up your own company – Barrick’s boss praised rival Kirkland Lake Gold Ltd., author of last year’s controversial $4.9-billion takeover of Detour Gold Corp.
Mr. Bristow questioned why investors were initially skeptical of Kirkland Lake’s plans to bulk up – the company’s stock dropped 17 per cent on news of the all-stock deal. He said the acquisition made all sorts of strategic sense, is working out well for shareholders and should trigger more activity. “We haven’t finished the job," Mr. Bristow said in reference to what Kirkland Lake started in the sector. "This industry still has a mish-mash of assets in too many manager’s hands and it needs consolidation.”
Mr. Bristow took the top job at one of the world’s largest gold companies less than two years ago, after Toronto-based Barrick acquired the company he co-founded, Randgold Resources, for US$6-billion. During his 30-minute session at the World Gold Forum, the 61-year-old CEO encouraged institutional investors to support gold companies with acquisition-based growth plans.
After his presentation, Mr. Bristow built on this theme in a conference call with analysts. In a report, Josh Wolfson at RBC Dominion Securities Inc. summed up the session by pointing out the Barrick CEO said consolidation has “stalled" since Kirkland Lake’s deal. He said Mr. Bristow “characterized the current industry strategy as effectively being to increase dividends and then check out.”
Did I mention he’s blunt?
Bankers who spend their days pitching CEOs on deals have an expression to describe what has stalled takeover activity in the gold sector. The bankers blame “social issues.” That’s a polite way of describing the impasse that comes when two companies with two handsomely paid CEOs and two entrenched boards talk about combining forces, but cannot agree on who gets to be the surviving CEO or chair.
There are 92 precious metal miners listed on the Toronto Stock Exchange. Consolidating that crowd means eliminating a great many high-paying head office jobs.
While there is a compelling case for takeovers – gold companies always need to add new reserves as they drain existing properties – a great many CEOs prefer the status quo to selling to the likes of Mr. Bristow and losing their jobs. Until investors greet takeovers with enthusiasm, rather than a 17-per-cent swoon in the stock price, these CEOs have a reason to sit on their hands.
If takeovers are in the cards, what does Barrick want to buy? Mr. Bristow told those who tuned into the World Gold Forum and subsequent analyst meeting that he is always scouting for world-class properties. Barrick’s acquisition team is focusing the bulk of its attention on Canadian targets worth up to $2-billion. Despite the pandemic, Mr. Bristow told analysts, Barrick completed seven due diligence processes – including site tours – over the past nine months. Barrick is kicking tires at everything from greenfield projects to companies with a single producing mine.
And Mr. Bristow, a big-game hunter, is stalking one enormous prize, Freeport-McMoRan Inc. The Phoenix-based copper miner has a US$25-billion market capitalization and what’s historically been one of the world’s most productive gold and copper properties, Grasberg in Indonesia. Freeport is in the midst of an expensive, multiyear process that will transform Grasberg from a massive open pit into four separate underground mines.
Over the past year – most recently, after the World Gold Forum – Mr. Bristow has mused about combining forces with Freeport, while maintaining he has no interest in making a hostile offer.
Analysts say institutional investors would revolt at the marriage of Barrick, a pure gold play, and Freeport, a base metal miner. In a recent report, Scotia Capital Inc. analyst Tanya Jakusconek said she is “skeptical that a full Barrick-Freeport merger will occur, although perhaps this approach could lead to a different transaction,” such as Barrick buying Grasberg. No one doubts Mr. Bristow’s determination.
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