It is not every day that the world’s largest gold company changes leaders at the helm, but such a rare day occurred on January 16, when Barrick Gold’s (ABX-T, ABX-N) new president and CEO, Aaron Regent, took over from Peter Munk, who stays on as chairman.
Munk stepped in temporarily to fill in as president and CEO when previous incumbent, Greg Wilkins, took ill. When it became clear that Wilkins would not resume his role, the board decided to search for a CEO candidate.
“I, for one, who formed this company, and being with it from the first day, cannot perceive a more important and vital event in the evolution of our corporate history than the appointment of a new CEO,” said Munk, who, together with Regent, spoke to analysts on a conference call.
Munk underlined the exhaustive lengths that the board went to in the selection process.
“The board has taken this task with the gravitas, and attached to it the time needed, that reflected how important they thought this decision would be for Barrick.”
“We had an unprecedented number of top people applying for this job,” Munk added, but Barrick was looking for a very special person to lead the company. “We could have found a dozen miners, (but) we were looking for somebody who would take this company forward not just as a miner, but as a businessman.”
Regent, 43, who is a chartered accountant, eventually emerged as the best candidate. Despite his relative youth, he was responsible for some of the largest companies in Canada, and in particular miners Noranda and Falconbridge.
“What separates the boys from the men are the tough times,” Munk said. Regent has gone through such difficult times at Noranda and Falconbridge, then controlled by Brascan, at a time of low commodity prices and rising costs.
“In that difficult environment Aaron moved smoothly from the chief financial officer role to the operational areas, and that gave him a real foundation in every aspect,” Munk said.
What impressed Barrick the most was the way Regent handled the $26 billion sale of Falconbridge to Xstrara (XTA-L), since in negotiating that deal he has done the very best for his shareholders.
“There was nobody in the mining industry who would not have had the greatest admiration for the behaviour and for the strategic evaluation of every global option,” Munk said. “And that is how the Falconbridge saga came to a very happy end for the owners.”
In addition to his experience in, and passion for, mining, and his financial expertise, Regent has also acquired valuable experience at Brascan and Brookfield Asset Management (BAM.A).
“We have embraced Aaron. We are thrilled that he has joined us,” Munk said.
What Munk wants to see is steady growth in shareholder value. Barrick is in a unique financial position to deliver this, and gold is the right place to be in right now.
“We look at this as the beginning. The future is unlimited,” said Munk. “I am thrilled, honoured, pleased and excited to hand over now to Aaron. Aaron has the total support of every member of our team”
Regent responded that Barrick is “a great Canadian company.” He said that he was thrilled and honoured to be at Barrick.
He listed a number of immediate priorities. He wants to gain an in-depth understanding of the company, and will be travelling to the company’s far-flung operations around the globe to meet people. On the operational side, his attention is focused on the three major projects underway, which he wants to ensure are “on track, on time and on budget.”
Although Regent did not mention the projects by name, the three are Buzwagi, Pueblo Viejo and Cortez Hills. Buzwagi, in Tanzania, is budgeted at US$400 million, and has reserves of 3.6 million oz. gold. The Cortez Hills project, in Nevada, has a US$500 million budget and contains 11.5 million oz. gold in reserves. Finally, Pueblo Viejo, in the Dominican Republic, has a US$2.7 billion budget and sits on 20.4 million oz. of gold reserves. Pueblo Viejo is 60% owned by Barrick and 40% by Goldcorp (G-T, G-N).
Regent did mention the Pascua Lama project, where construction has not started. The project is split between Chile and Argentina, has a US$2.7 billion budget and holds reserves of 18 million oz. gold.
Regent feels that Barrick is in a great shape and in an enviable position. It brings a number of strengths to the table, and in particular a strong team and a strong balance sheet. This makes him optimistic about the company’s ability to continue delivering value for shareholders.
People should not expect a major change, Regent said. While there is always room for improvement, he does not foresee a significant change in strategy. “If it isn’t broke, why fix it?” he said. However he acknowledged that a strategy has to adapt.
Regent did not show much enthusiasm for an idea, raised by an analyst during the call, that Barrick could diversify and recast itself as another mega-miner in the mold of BHP Billiton (BHP-N, BLT-L) or Rio Tinto (RTP-N, RIO-L).
Although Barrick, which positions itself to investors as a pure gold play, is not too diversified by commodity, Regent says that it is well-diversified geographically. “Our focus will continue to be on gold,” he says.
Regent identified as his biggest challenge “ensuring we deliver on our production numbers and cost numbers.” People also underestimate the challenge of ensuring projects are on track, he said.
Although Barrick is in an excellent shape regarding its reserve base, and has an attractive pipeline of projects, he says that there is “potential to take advantage of new opportunities.”
Regent identified capital allocation as both a challenge and an opportunity. “We must invest in a way that creates the most value,” he said.
Asked whether he would like to delay or hold back any activity on the merger-and-acquisition front, Regent’s reply was instructive.
“I would shudder to think that I will be a cause for a delay of anything that makes sense for the company,” he said. Although he did not name any imminent deal, he does not plan to defer merger and acquisition activity.
Barrick’s three most important priorities are exploration, project development and acquisitions, “a three-pronged attack,” which he sees no reason to change. He says that the company has a good track record of advancing projects.
To Regent, the most important corporate value is to think and act as an entrepreneur and get things done, while maintaining a balance between expediency and prudence.
Responding to an analyst’s question regarding gold hedging, Regent said that 8% of Barrick’s reserves are hedged. He plans to continue with the existing policy to not enter into any new hedging.
Regent and Jamie Sokalsky, Barrick’s executive vice-president and chief financial officer, identified a number of bullish factors for gold, and in particular the huge spending commitments of the new US administration. They believe that the US government will embark on reflationary policies, weakening the greenback. Furthermore, over the next 3-5 years, mine production and the ability to grow supply is a challenge.
Sokalsky quoted respected gold consultant GFMS as saying that the breakeven price of gold is in the US$600-700 per oz. range.
It is no wonder, therefore, that Sokalsky sees a strong base of support for gold, particularly in view of the proliferation of new investment products for gold, such as exchange-traded funds (ETFs). Geopolitical risks are catalysts for a move to gold as a safe-haven, and people will use gold to diversity away from US dollar reserves.
“We are in the middle innings of the gold cycle,” Sokalsky said. He believes that there are many more positive factors than negative factors for gold.
Regent then summarized his vision for the company. “I want Barrick to be the highest quality gold company: in performance; in returns; and in quality of asset base.”