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TABLE OF CONTENTS May 12 - 18, 2014 Volume 100 Number 13 - 0 comments

Barrick's Peter Munk defends successor John Thornton

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By: Salma Tarikh

During his farewell speech to shareholders at the company’s annual meeting on April 30,  Barrick Gold’s (TSX: ABX; NYSE: ABX) founder and departing chairman Peter Munk said John Thornton is the “right guy” to replace him.

The 86-year-old executive, who founded Barrick in 1983, said he was “really hurt and confused” when shareholders criticized the company’s pay package for Thornton. The company would have not survived through the decades if it was careless with its shareholders’ money, he said.   

The world’s largest gold producer paid Thornton US$17 million, including a US$11.9-million signing bonus, when he became Barrick’s co-chairman in 2012. Despite plunging share prices, massive writedowns and over US$10 billion in net losses, Thornton received a US$9.5-million salary last year, further enraging shareholders.    

But Munk justified those payouts by touting Thornton’s international business experience, Chinese connections and track record, painting the former Goldman Sachs executive as the most qualified person to steer Barrick “down a more dangerous global route.”

“John Thornton is going to be the very best investment in my 32-year legacy that I have authorized or have made for Barrick, and that includes Goldstrike — which wasn’t a bad one,” Munk told shareholders.  

Barrick acquired the Goldstrike asset in 1986 for US$60 million, which many industry observers at the time argued was too high. Since then, Goldstrike has become one of the largest gold mines in North America, producing more than 40 million oz., and remains among Barrick’s top assets. 

Known for its hostile acquisitions, Barrick has grown its initial $140-million market capitalization to more than $22 billion today despite its recent struggles, Munk noted. (He didn’t mention the failed merger talks with rival Newmont Mining [NYSE: NEM]).  

“Today with miserable, miserable huge drops and tens of billions of dollars written off, 1% of Barrick even today is worth $220 million,” he said. This market cap is based on the company’s shares hovering at $19, which is less than half of what they traded at two years ago, mainly due to falling gold prices.

To soothe shareholders seething over the company’s weak performance, Barrick ditched its CEO for Jamie Sokalsky, who has since aggressively cut and deferred US$2 billion in costs last year by reducing the company’s asset base and delaying expensive growth projects, among other things. Earlier this year, Barrick unveiled a new compensation plan, where it will pay part of its executive salaries in shares.

Munk, who appeared bittersweet about retiring, said he was confident that Barrick would prosper to new heights under Thornton’s guidance and Sokalsky’s team, commenting that he’s leaving the firm with “the best A-team Barrick has ever had.”   

He added that the company would always remain a part of him: “You can take Munk out of Barrick, but you can’t take Barrick out of Munk.”

Q1 profits plunge

Barrick saw its first-quarter profits drop 90% to US$88 million, or US8¢ per share, from a year ago.

The drop largely resulted from one-time items, including a US$113-million foreign currency translation loss and US$30 million in costs to ramp down its controversial Pascua-Lama gold–silver project on the Chile–Argentina border. The ramp down should be done by mid-year, and could cost Barrick — along with the project’s environmental and social obligations — US$300 million this year. 

Removing special items, adjusted earnings per share were US20¢, which is largely in-line with analyst expectations, but below the US92¢ earned a year ago.

“Earnings declined year-over-year primarily due to the impact of lower metal prices and gold sales volumes,” Sokalsky said on a conference call.

Barrick produced nearly 1.6 million oz. in the quarter, or 12% less than a year ago. Sokalsky said the lower output reflects the sale of several non-core assets last year. Barrick now has 19 mines — down from 27.

“But the assets that remained delivered a strong performance,” he noted.

Sixty percent — or 1 million oz. gold in the quarter — came from Barrick’s five core mines, including Cortez and Goldstrike in Nevada, Veladero and Lagunas Norte in South America, and Pueblo Viejo in the Dominican Republic. These mines are slated to deliver 60% of the company’s annual gold production at all-in sustaining costs of under US$800 per oz.

Copper output for the quarter fell 18% to 104 million lb., with heavy rainfall affecting the Lumwana mine in Zambia. But Barrick managed costs, and C1 cash costs declined 15% to US$2.11 per lb. copper.

For gold, all-in sustaining costs fell US$100 to US$833 per oz.

The company has reiterated its full-year gold guidance of 6 million to 6.5 million oz. at all-in sustaining costs of US$920 to US$980 per oz. But it has cut its annual copper forecast by 12% to 410 million to 440 million lb., while keeping C1 cash costs at US$1.90 to US$2.10 per lb.  

Barrick ended the quarter with US$2.7 billion in cash and equivalents. It says it’s on track to reach US$500 million in annual savings by year-end.  

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