Barrick CEO Sokalsky stepping down

Barrick Gold’s (TSX: ABX; NYSE: ABX) president and CEO Jamie Sokalsky will be leaving his post in September, as part of a management shakeup whereby the major gold producer is axing  its CEO role and naming two executives as co-presidents.

This change comes less than three months after Barrick’s founder and long-time chairman Peter Munk retired, with John Thornton stepping in as the new executive chairman and establishing himself as the person in charge.

This latest announcement is a blow to Sokalsky, who since becoming CEO in June 2012, has focused on reducing costs and improving cash flow. He has been applauded for steering the firm through 2013, likely the most difficult year in the company’s history, as gold prices collapsed. 

During that year, Sokalsky and his team cut US$2 billion in annual costs by selling underperforming assets and deferring growth projects. The company also completed a US$3-billion equity raise to pay down debt.

Munk, during his farewell speech in late April, praised Sokalsky for his dedication and cost-saving initiatives. “I’m proud of Jamie,” he said, adding Sokalsky is part of a “winning team.”

But Thornton, a former Goldman Sachs executive who became Barrick’s co-chairman in June 2012, appears to have a different vision for the global miner.

“These structural changes put an even greater emphasis on operational excellence, and will accelerate our portfolio optimization and cost-reduction initiatives, while fostering a partnership culture both inside the company and externally,” Thornton said in a release.

Sokalsky will step down on Sept. 15, after spending over 20 years at the Toronto-based firm. He joined Barrick as treasurer in 1993 and became chief financial officer in 1999, before replacing Aaron Regent as CEO in 2012.

In the meantime, Sokalsky will help implement the new management structure.

Barrick will promote Kelvin Dushnisky, currently senior executive vice-president of corporate and government affairs and chairman of African Barrick Gold (US-OTC: ABGLF; LSE: ABG), and Jim Gowans, executive vice-president and chief operating officer, to the roles of co-president. Dushnisky and Gowans will manage Barrick’s mining operations and cultivate relationships with host governments, local communities and external stakeholders.

Haywood Securities analyst Kerry Smith says he is not fond of co-president arrangements, but says it could work if the responsibilities are clearly defined.

He suggests Barrick may be providing Dushnisky, who is a lawyer by training, an opportunity to become the next CEO by allowing him to learn the operating side of the business as the co-president. 

“I think they think he has the right personality and the right skillset to be a CEO,” Smith says.

Cowen and Co. analyst Adam Graf adds the “management change highlights ABX’s most prominent issues: capital-intensive growth amidst a heavy debt burden, and a weak metals price environment.”

Despite last year’s multi-billion dollar equity raise, Graf and Smith both agree the company’s balance sheet remains a concern.

Barrick, which ended the first quarter with US$2.7 billion in cash and equivalents, has a long-term, US$13-billion debt, Smith says. “They have more debt than they should have for a company that is generating the amount of cash flow that they are generating.”

While most of that debt has been termed out — with US$300 million due in the next two years, and $1 billion due in the next four years — Smith emphasizes “there is still more debt than you’d like.”

Both analysts speculate that Barrick will sell its assets and delay projects to lighten up its balance sheet.

As part of the management change, Ammar Al-Joundi will become senior executive vice-president and chief financial officer, and will work closely with Thornton on developing strategic initiatives. Barrick also named Darian Rich as its talent manager, a new position that will focus on attracting, developing and retaining the company’s workforce.

Barrick shares closed July 16 up nearly 3% at $20.28, with 3.8 million shares traded.