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lookahead: mining

Kelly Taylor/The Globe and Mail

The market will not be especially interested in the bottom line when Barrick Gold Corp. reports second quarter earnings at the end of the week.

Instead, all eyes will be on the new chief executive officer, Jamie Sokalsky, who makes his public debut at the helm of the world's largest gold company nearly two months after his predecessor, Aaron Regent, was suddenly ousted from the role as the stock price floundered.

"I think his mandate is pretty open-ended, it's 'Get our stock price up,' " said Jorge Beristain, managing director for metals and mining research at Deutsche Bank Securities Inc in New York. "How he goes about that, he hasn't really tipped his hand one way or another. Is he going to come out announcing a big share buyback? Is he going to come out and start shutting down some of the higher cost projects? Is he going to double-down and fast-track others?"

By far the world's biggest gold producer, spanning the globe with stakes in 26 operating mines, Barrick has been challenged in recent years to find new ways to grow as fewer large gold deposits are discovered. Before losing his job, Mr. Regent is said to have clashed increasingly on the issue with the board and co-chairman Peter Munk, particularly after Barrick's much-questioned acquisition of Equinox Minerals Ltd., a copper company, in 2011 for $7.3-billion in cash.

Barrick has denied there were any disagreements between Mr. Munk, who founded the company, and Mr. Regent, who had been a rising star among Canadian mining executives.

When Mr. Sokalsky presents the company's second quarter earnings before the market open on July 26, investors will be bracing for some news to justify the executive shuffle. There is speculation among analysts that a writedown could be announced on Equinox, bought when copper prices were 25-per-cent, or about $1 per pound, higher than they are now.

"I think there is definitely some fear that following Aaron's departure there was another shoe to drop if you will, and if there is none of that kind of writedowns or bad news, I think the market will breath a sigh of relief," said Mr. Beristain.

In the absence of any further statements from Barrick, stock in the company has fallen about 13 per cent since Mr. Regent's departure, in a down market for gold stocks. The stock was trading at close to $35 a share on Friday, compared to more than $50 a share when Barrick closed the Equinox deal.

The shares of other major gold producers track similar declines – a disconnect with the market for gold bullion, which is still trading at nearly double where it was five years ago. In order to take a writedown on Equinox, Barrick would have to believe there was an impairment on the asset that made it worth less than the value on the company's books. Each $1-billion in writedowns is worth about $1 a share, analysts say. (Barrick has approximately one billion common shares.)

"I am anticipating a write down of about $2-billion, based on increasing costs from Lumwana and the decline in the copper price," said Pawel Rajszel, an analyst with Veritas Investment Research in Toronto, referring to the copper project Barrick acquired with the Equinox takeover.

Barrick said near the end of June that it was undertaking a full review of all its projects and operations, and analysts say they'll be keen to hear about any changes at its two largest projects, the Pascua-Lama gold and silver project in the Andes and the Pueblo Viejo gold mine in the Dominican Republic.

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