LAWRIE WILLIAMS: Could proposed Barrick/Randgold merger kick off new era for top gold miners?

LAWRIE WILLIAMS: Could proposed Barrick/Randgold merger kick off new era for top gold miners? from Sharps Pixley

Where the leader goes, others will follow! Arguably Barrick Gold is the company other top gold miners aspire to emulate, so will its proposed merger with Randgold Resources to buy in an alternative management strategy see other top gold miners follow suit in terms of management direction? If the proposed merger goes ahead and the ‘Randgold way’ is successfully implemented at what will again be the world’s top gold miner, the answer is probably yes!

Barrick was very much at the forefront of the production growth at any cost strategy which worked well in a continuing rising gold price scenario, but once gold peaked in 2011 and started to come down from its highs, the company was left with some hugely expensive capital projects on its books and a mountainous debt position. Most of its capital projects were too far advanced to be halted, although the horrendously costly, and technically complex Pascua Lama development straddling the Chile/Argentina border was able to be stopped, but only after expenditures of around $6 billion had already been sunk into the project. When gold was strong and rising mega producers like Barrick could handle costs like this and the banks were still falling over themselves to lend money accordingly.

But when the gold price plateaued and started to fall it was another story altogether. Profits and any fere cashflow were substantially reduced and big institutional shareholders who had been perfectly happy with the growth at almost any cost strategy pressured Barrick into top management changes and some fairly drastic cost cutting and debt reduction programmes. So it was with other major god miners too. They had been pursuing similar strategies to Barrick and found them selves in similar predicaments. In that period from 2012 to 2015 virtually all the gold major CEOs were ousted and replaced as were many others in exec management positions. The miners entered a period of unmatched austerity from which few have recovered to any meaningful extent. The industry as a whole has substantially reduced debt, has cut back drastically on capital projects and has cut, or reduced, various management tiers. But with a lacklustre gold price stock p[rices have continued to slip and shareholders with clout are not happy.

But all the while one tier one gold mining company with operations all in the unfavoured regions of West and Central Africa continued to grow without incurring massive debt and managing at the same time to sharply increase its dividend payments by sticking to strict new mine investment parameters. It largely relies on its own mineral exploration activities for growth, although has entered into some strategic partnerships. This miner is Randgold Resources which very much follows a different management pattern to the gold majors. It has a hugely slimmed down management structure in comparison with its peers nd no expensive head office to maintain. It is perhaps something of a one-man band through its founder and chief executive, Mark Bristow, who has remained firmly in charge throughout the company’s 23 year life but he has developed a management system which works and had built the company up to becoming the world’s 15thlargest gold miner with annual output approaching 1.7 million ounces.

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Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT). He has worked in mines in South Africa (gold, uranium and platinum), Canada (uranium), Zambia (copper) and U.K (coal) and holds a South African Mine Managers certificate. He also worked as a gold mining company analyst for one of the major South African mining houses. He left South Africa to join Mining Journal as Financial Editor and worked his way through that organisation to edit Mining Magazine, and then join the Board. He was Managing Director (CEO) of the company for 13 years up until it was sold in 2001. During part of this period he was also President of Nevada-based U.S. company Mining Media Inc which was publisher of North American Mining magazine.