Barrick slides on management changes

Barrick Gold (ABX-T, ABX-N) took a mild beating after it named a new chief executive in a move to bolster its share price, leaving some analysts wondering if turbulent waters lie ahead.

The world’s largest gold producer replaced CEO Aaron Regent, with chief financial officer Jamie Sokalsky, citing poor share price performance. As part of the management shakeup, it appointed director John Thornton as co-chairman, a position he will share with Barrick’s founder Peter Munk.

But the company provided little details for the sudden move, which caught many investors and analysts by surprise. In a statement, Munk said that the board was disappointed with its share performance and believes Sokalsky could help move the company forward, leaving some analysts suggesting there could be more to the story.

“Barrick’s share performance has been in line with its peer group,” says George Topping, an analyst with Stifel Nicolaus. “So, I wouldn’t say that is the real reason, perhaps there is bad news in the pipeline that Peter Munk has decided that it’s time for a change ahead of the potential bad news that is still to come out.”

The company’s share price has risen 2.3% in Canadian dollars or 22.7% in U.S. dollars since Regent took the company’s helm in Jan. 16, 2009, to his last day on the job, June 5, 2012.  

By comparison over the same period in U.S. dollars, Newmont Mining (NMC-T, NEM-N) gained 36%,AngloGold Ashanti (AU-N) rose 44%, Goldcorp (G-T, GG-N) advanced 52% and Kinross Gold (K-T, KGC-N) tumbled 51% — all lagging the spot price of gold, which shot up 92% to US$1,616.90 per oz. over that time.

“To me it is very smelly,” writes Christopher Ecclestone, a mining strategist at Hallgarten & Co., in an email. “Barrick hasn’t been doing badly. I wonder if there is a scandal somewhere here… the failure of the stock price to move up [on the news] means the market doesn’t think [Regent] was the problem.”

While Ecclestone didn’t detail what the potential “scandal” or perhaps the bad news could be, he did say Barrick could have done without the skake-up. “Their management was dull but so is the management at Newmont et al.,” he says. “Regent does not seem to have done a bad job. No worse than many other companies, and certainly a lot better than Kinross.”

When asked what could have led to Regent’s demise, Stifel Nicolaus’ Topping suggests it could have been related to last April’s $7.5-billion acquisition of Equinox Minerals, which he believes Barrick overpaid by 50%.

“I think he’s a fall guy for Equinox, which is the most likely excuse right now.” But he adds the company’s chairman and board at that time had supported that deal.

“It may also suggest that the Equinox assets are worse than expected, or that the $5-billion Pascua Lama development has issues, and therefore, a head must roll,” he penned in a note to clients.

The Pascua Lama gold-silver project, located on the border of Chile and Argentina, is anticipated to come online in mid-2013.

Topping says Barrick is also “way over budget and late” in getting Pueblo Viejo in the Dominican Republic up and running.  

Barrick holds 60% of the project, while Goldcorp owns the rest. First production at Pueblo Viejo is expected in mid-2012.

In Toronto, the company’s shares closed down 5% to $41.53 as 6.1 million shares changed hands.