Bristow seeks to build the world’s most valuable gold company

In a one hour and forty-five minute conference call on Feb. 13, barely seven weeks after the merger of Barrick Gold (TSX: ABX; NYSE: GOLD) and Randgold Resources became effective on Jan. 1, newly installed president and CEO Mark Bristow said he was excited “by the prospect of putting the Barrick brand back where it belongs, and that is at the head of the gold mining industry,” and that the new team had already made “a really strong start towards our goal of becoming the world’s most valued gold company.”

“For both John [Thornton] and I, when we were motivating this transaction, we were very clear about that — the aim was never to be bigger,” Bristow continued. “It was to combine world-class assets with world-class people in a business capable of sustainable, profitable growth, and industry leadership.”

The priority in the initial days and weeks of the business combination was to “have teams and structures fit for purpose,” Bristow explained, and Barrick now has put in place fully functioning, regional executive teams, with North America under Catherine Raw, Latin America under Mark Hill, and Africa under Willem Jacobs.

Supporting the executive teams “is a new corporate team with a mix of skills and experience,” Bristow said, and “when you put it all together on a side-by-side analysis, there is not another resource company on this planet that has the depth and breadth of skills that Barrick can boast today.”

The corporate office and the satellites have been restructured “to move people and functions, such as the innovation and digital departments, out of the backrooms and into the operations where they belong,” the South African mining executive told analysts and investors on the conference call. “So, you know, those short little hysterical cries about us closing down stuff is unfounded. We really put people back to where they’re supposed to be to ensure that we do lead properly in the mining industry.”

Structurally, the new Barrick has also put in mineral resource management teams at each of the mines, and is revising systems “to give management the kind of real-time data access we had at Randgold.”

Mining plans are being moved from a cash flow optimization base to a model focused on optimizing the orebody, Bristow declared, and “using input costs to drive the margin and design, rather than high-grading revenue to drive the cash flow.

“This strategically-repositioned Barrick that is beginning to take shape is in line with my vision, and what an agile and effective modern mining company should be, and I can assure you it has been hard work and a little bit of stress, but we’re at that point now where we are — certainly I can speak for myself — starting to have a lot more fun, and I have got no doubt that you’ll see the benefits of a really motivated and energized management team going forward.”

One aspect of the work is mineral resource management and moving towards planning based on life-of-mine and geological models, with a drive towards reconciliation on a weekly basis, and eventually, as Randgold did in Africa, on a daily basis. “With the drive for cash flow, the geological side of the legacy Barrick was not where I wanted it to be,” he says.

On the cost-cutting front, Barrick has trimmed more than $150 million from the corporate cost base, largely driven by a lower head count and other costs outside the operations. The numerous support offices in Chile, Peru, Argentina and the Dominican Republic, for instance, have been downsized to reflect the leaner operating model, Bristow said.

The company is still working on a detailed five-year plan, he added, and will present this to the market in due course, once it has a clearer view on asset optimization, which will require a full replanning process for the group.

Reviewing the Barrick legacy assets, Bristow began with Nevada, which is now being operated as a single complex with dedicated managers in place for each mine — Goldstrike, Cortez and Turquoise Ridge — as well as at the Goldrush-Fourmile project.

“If you look at the Barrick reserves in Nevada, the average grade is about 3.5 grams per tonne, which is significantly higher than anyone else, but, more importantly, the resources are 5.4 or 5.5 grams per tonne. So when you look at it, the resources are very profitable … so as we convert that, the reserve base is going to grow both in ounces and in quality, and that’s the whole game in gold mining — start with world-class assets, you deliver a world-class business.”

Cortez is transitioning from largely an open pit to predominantly underground and from processing mainly oxide ore to a mixture of oxide and more refractory material. Lower throughput of oxides will lower gold production for the year as the Cortez pit comes to an end in the second quarter, and the dumps will be processed out to the end of the year. While Cortez is driving cost increases in 2019, all of Barrick’s other assets in the Nevada complex are delivering increases in production and a drop in costs, Bristow noted, although “not enough to mask the change forecast for the Cortez open pit.” That will change, he says, as Barrick “develops the Crossroads pit with a steady increase in grade that eventually peaks out in 2025.

Within the Cortez district, the Goldrush and nearby Fourmile discovery have become one project. “They are still two different parts of the project at this stage … but every indication is that it’s going to be a continuous orebody,” he says. “We’ve got a gap between the two, Goldrush and Fourmile, of about 500 metres left, but we’ve drilled some holes just recently — we haven’t got results back for them yet — but certainly the indication is that the mineralization continues.”

Development of the twin exploration declines at Goldrush focuses on getting into the orebody and doing detailed reserve drilling that will be adapted later for operational use.

The feasibility study for Goldrush is going to be “a very real focus of the new team,” as it reshapes and re-evaluates that project. “It’s a super exciting discovery. It’s a primary discovery, first of all, and secondly, it’s already well north of 10 million oz., and we just announced an endowment in the Fourmile section, a small resource based on the drilling we’ve done … but at a very impressive grade of 18.58 grams gold per tonne, and it’s within a very significantly mineralized footprint, and certainly underlies the Goldrush-Fourmile’s status as a genuinely world-class — at this stage — feasibility project, with the very real potential to become Barrick’s next tier-one mine … that’s something that, as a geologist, you go and look at the mineralization and the sort of level of intersection grade is just spectacular.”

Meanwhile, production ramp up continues at Turquoise Ridge, with a focus on using road-header technology to bring down costs ahead of the shaft commissioning in 2022.

In the Dominican Republic, a lot of upside remains at its 60%-owned Pueblo Viejo mine, and Barrick is set on delivering its full value and expanding its current reserves, Bristow said. The company has recently finished a scoping study and pilot plant that support the expansion “of what is really one of the world’s largest gold mines” and “a really significant tier-one asset in our portfolio.”

Based on this work, the company is progressing to a feasibility study. The expansion project is designed to extend the life-of-mine well into the 2030s, Bristow noted, helping the company maintain production of 800,000 oz. a year after 2022, “where things originally were going to drop off.”

In addition, Barrick is working on converting the generators from heavy fuel to gas, which will lower costs. He noted that Randgold can bring expertise to the project in terms of “proven process flow sheets, as far as ultra-fine grind and the sort of more tank-driven oxidation processes, rather than the current envisaged heap leach.”

In Argentina, “the picture is more challenging,” with the government’s currency devaluation and consequential changes in the fiscal regime impacting on the fair value of its Veladero mine in San Juan province, resulting in a US$314-million after-tax impairment charge.

“To restore Veladero, we have to really reinvent the way we’ve been operating it,” Bristow said of the high-altitude, joint-venture mine with China’s Shandong Gold. “Mark [Hill] and his team have already gone a long way to decide what we need to do … cost discipline and increased efficiencies are what the operation needs, in addition to a heavy dose of geological input.”

As a first step, Bristow said, “I’ve sent in some geological firepower as well as a mineral resource management review team to get a firm grip on the situation and find the best way forward. There are some significant potential resources that currently fall outside the current pit that need evaluating, and that is the focus of the combined Barrick/Shandong review team.”

At the moment, it’s all about right-sizing. “That was a big operation and was focused on gold production, and what we’re moving to is a focus on profitability, and so 500,000 oz. or thereabouts is probably, for the next couple of years, the right target,” he said. But, again, we need a lot more geological input to be able to really understand our mining reconciliation and what we’re putting on the leach pads.”

There is also a requirement for a new leach pad, which the company is designing and permitting. Meanwhile, Barrick says there’s potential for more resources at the southern end of the pit. “We’ve got to drill it — the drill spacing is just too far apart to be able to put that into your mine plan.”

Bristow also pointed out that Barrick has “embraced Shandong as a partner and really started to get them involved,” and together the two companies are working on lowering the cost structure by improving management oversight, rightsizing general and administrative expenses, and focusing on supply chain and other operational efficiencies. As well, Barrick is working on a project to bring cheap power in from Chile.

“In the Pascua Lama project, Barrick spent money to bring power to the border of Chile and Argentina, and so we’re looking at extending that infrastructure, cause it’s right there, and Veladero relies on very expensive thermal power today.”

The company is also collaborating with Shandong on other opportunities that the team has identified along the El Indio belt, Bristow said.

In Peru, meanwhile, after suspending plans to sell all of its assets in the South American country, Barrick is developing a new plan for its wholly owned Lagunas Norte open-pit, heap-leach mine on the western flank of the Andes. “Peru has a new government as you know, or you should know, which is more mining-friendly than its predecessor, and it remains a key destination for Barrick in its endeavour to revitalize its greenfields exploration into South America.”

The intention is to update the geological and orebody models, assess the satellite oxide potential and extend the known high-grade sulphide mineralization.

More generally, Bristow noted, Barrick will put more energy into South America. “While Barrick was managing down its debt there was a necessary but somewhat single-minded focus on cash flows … and one of the consequences was the relative neglect of exploration in Latin America, where we have now revitalized our exploration programs and are actively pursuing brownfields and greenfields opportunities.”

One example is Alturas, a greenfield discovery on Chile’s El Indio belt. Barrick finished a scoping-level study for a conventional open-pit, heap-leach project in 2017 that fell just short of the company’s hurdle rate. Now Barrick is conducting more drilling with the goal of increasing grades, adding and better defining shallow, near-surface mineralization, and increasing potential mine resource tonnage. The project has an inferred resource of 6.8 million oz. gold.

The company is also interested in the prospective and underexplored Guiana Shield in South America, and recently boosted its strategic investment in Reunion Gold (TSXV: RGD), which has gold projects in French Guiana and Guyana.

In Papua New Guinea, Barrick is engaging with its partners and is “fully aligned with the path forward on the approval of the new special mining lease (SML) extension due in August 2019. (Bristow made his first visit to the country after the conference call and met with government officials and members of the Landowners Association, with whom he reaffirmed Barrick’s commitment to negotiate an extension of the SML agreement.)

“As with a number of the Barrick assets, Porgera has been a little neglected and starved of capital for many years due to the uncertainty around the SML extension,” Bristow said.

The focus at Porgera in 2019 will be to assess its full potential and decide on a plan, “because there’s one thing that is absolutely clear — this asset keeps producing positive cash flows despite the challenges it has to face, and we all know that part of the world is home to many world-class deposits.”

As for Acacia Mining and its assets in Tanzania, Bristow said that the “current impasse” is “clearly a lose-lose situation for Acacia shareholders and other stakeholders, which also include Barrick and the Tanzanian government,” and said the company continues to engage in mediating a solution.

After the call, Barrick announced on Feb. 20 that in “its capacity as a facilitator,” Barrick and the Tanzanian government had reached a proposal setting forth the commercial terms to resolve outstanding disputes involving Acacia. These include agreement that the economic benefits from Acacia’s operations be shared on a fifty-fifty basis and that the government’s share would be in the form of royalties, taxes and a 16% free-carry interest in the Tanzanian operations, in addition to a $300-million payment to the government to resolve outstanding tax claims, which will be paid over time.

During a question-and-answer session on the conference call, when asked about potential asset sales and acquisitions, Bristow said that in terms of sales, Barrick will decide “in the fullness of time.”

He added that “some of the assets we’ve got a bit of work to do to make sure that we maximize the sale value, and we’re busy with that. Others are more saleable in the short term. And, again, we’re not sitting on our hands.”

As for potential acquisitions, he pointed out that in his experience, “many new business opportunities have been destroyed by our due diligence.

“We’re not going to be seduced into making those irrational acquisitions that our industry is so very good at,” he said. “But at the same time, if you stumble and you’ve got quality, you’ll find us at your front door.”

He also pointed out that his preference was to find something, not buy something.

“For me, finding another 15 million oz., plus 10 gram near-surface gold deposit myself is much more exciting than buying one,” he continued. “So, I’ve got no doubt we’ve got a lot of work to do with the asset base. It’s a quality asset base. We are not interested in boosting production. What we want is profitability.”

Another exciting thing, he said, is that Barrick has “a very large earnings before interest, tax, depreciation and amortization (EBITDA), and we now understand how it’s been whittled away to a net cash flow, which even then still supports our dividend strategy. But, again, we’re going to be focused on converting that EBITDA into more net positive cash flow. And that’s the really exciting part of this business. And we’re going to be very focused on doing that.”

As for acquiring more assets in Canada, Bristow admitted Barrick was “under-invested” in the country in terms of its allocation of capital.

“You buy assets because of two things: poorly run or well run,” he continued. “There are not a lot of well-run assets in Canada, either. So what we have got is a fully dedicated team looking at both opportunities, and also looking to build an exploration — sort of early-stage project identifier.”

When asked whether Barrick might consider buying an asset like Pretium, Bristow didn’t mince words. “Everyone knows what the problem in Pretium is. It’s been fast-tracked and it’s sitting in a position where it’s like a roast duck, no dinner. One month it’s good and one month it’s bad.

“And how do you try and get your head around what the real value of an asset like that is? … it would be unwise for us to do anything in a rushed or poorly considered way, whether it’s Pretium, or any other asset.

“It’s going to take me a little while to become Canadian,” he acknowledged. “I’m working hard at it, to be able to understand the Canadian opportunities.”