Editorial: Top gold mining CEOs Bristow, Letwin and Marrone weigh in on consolidation

With The Northern Miner’s Canadian Mining Symposium held at Canada House in London, U.K., in May, attendees were treated to contrasting visions for the gold mining industry put forward by three gold mining leaders.

Mark Bristow, president and CEO of Barrick Gold, said his company focuses on the quality of its orebodies, stating: “The principle of any mining is: your revenue is in your orebody. If you start with a high-quality orebody, it doesn’t have to be high grade. It can be lower grade in a pit with no strip ratio. But if it’s a high-quality orebody, you’ll always end up with a better return.”

Mark Bristow, presidene and CEO of Barrick Gold, at The Northern Miner’s Canadian Mining Symposium held at Canada House in London, U.K., in May 2019. Credit: Martina Lang for The Northern Miner.

For Bristow, the overriding rationale driving the merger between his own Randgold Resources and the larger Barrick Gold was the rare opportunity to get half of the world’s top-tier gold mining assets under the roof of a single company — a trend that only accelerated with Barrick’s post-merger deal with Newmont Goldcorp to joint-venture most of their Nevada gold assets, and create new opportunities to optimize operations.

“When you combine the best assets with great people, there’s not much to do to deliver quality returns, because it comes naturally,” Bristow said.

Steve Letwin, president and CEO of Iamgold, put more emphasis on the need to beef up the size of mid-tier gold mining companies to attract investor attention.

He noted that the top-10 gold companies worldwide have a total market capitalization of only US$120 billion, whereas Microsoft alone has a market capitalization of US$960 billion. Perhaps more painfully, the top-five cannabis companies in Canada have a total market cap over $80 billion.

Letwin spoke approvingly of both the Barrick-Randgold and Newmont-Goldcorp mergers, and said the fact that stock prices all rose on the deals indicates that the market approved heartily, as well. “We do need to consolidate. I’ve been saying this for two years at least, that there are too many of us with too little capital.”

Steve Letwin, president and CEO of Iamgold, at The Northern Miner’s Canadian Mining Symposium held at Canada House in London, U.K., in May 2019. Credit: Martina Lang for The Northern Miner.

Peter Marrone, executive chairman of Yamana Gold, agreed with Letwin that both mega-mergers were “smart transactions,” but was far more circumspect, saying of the recent drive towards consolidation: “I recently described it as a three-act play where we’ve seen the first act. We don’t know what the second and third act is, we haven’t seen the synopsis of it. We don’t know how the play ends, and yet we’re already coming to the conclusion that there should be consolidation … that that’s only the way forward, and I’m not sure that I agree with that.”

He then added: “I don’t take what is happening today as the end of days. We’re going through a cycle. It is at a point in the cycle that I was saying to someone in the anteroom just now that it’s the worst I’ve seen in probably 25 to 30 years. So it isn’t particularly good, but let’s not give up on it yet.

“The industry is not entirely in disarray. We are finding things. We’re replacing ounces. We are consolidating as those companies have done. We are producing. Gold seems to be rangebound, but it’s rangebound within an area that for many companies — perhaps the majority, certainly the plurality of companies — they’re making money. We’re generating free cash flow, we can demonstrate that there’s a value proposition.

“Where there’s a disconnect perhaps, where it creates disarray, is that we haven’t done a very good job — in fact, we’ve done a very poor job — of communicating to the investing public what the thesis for investment in a gold mining company is.

Marrone said the “sweet spot” is with the intermediate mining companies, and if he is right, the cycle will shift and gold prices will improve. “An investment in the equities will prove the best place to be is in the intermediate-sized companies. And consolidation for the sake of becoming bigger is a mistake. Replacing ounces becomes more difficult. We have to go to more far-flung places, and that creates an imbalance between the risk and reward equation.”

Letwin argued back: “There’s a bit of insanity in the gold space where if we don’t do something differently we’re going to continue to wither away. When I joined the industry from the oil and gas business in 2011, precious metal miners alone raised US$8 billion in equity. Do you know what that number is today? It’s less than US$100 million this year. The market is tired of the way we run our business. So we need to wake up and listen to the market, and do something different … we have to go to a self-funding model. The oil and gas business had to do the same thing.”