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Feb 12, 2020

Barrick CEO Mark Bristow says dividend increase 'sustainable'

Barrick CEO Mark Bristow says dividend increase 'sustainable'

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Asset sales and higher gold prices are creating short-term benefits for Barrick Gold Corp., and raising longer-term questions.

The world’s second-largest gold producer will exceed its two-year goal of selling US$1.5 billion in assets by the end of 2020, Chief Executive Officer Mark Bristow said in an interview.

Those sales -- along with a strong tailwind from higher gold prices -- allowed the company to boost its dividend once again, while cutting debt. However, shedding assets also shrank the miner’s production profile, causing it to lower its five-year guidance and think seriously about whether it should add more copper to its portfolio.

“My issue is, what does our company look like in 10 years’ time?” Bristow said, following the release of the miner’s fourth-quarter earnings. “If you’re going to be a major player, you need to have copper in your portfolio.”

Barrick announced its initial asset-sales target in the wake of its US$5.4 billion acquisition of Randgold Resources Ltd. last year. The Toronto-based global miner sold a number of assets in 2019 including its 50% stake in the Kalgoorlie mine in Western Australia.

“We’re going to beat it,” Bristow said Wednesday of the US$1.5 billion target. “We still have some work to tidy up the portfolio.” The company has roughly US$450 million in sales to go to reach the US$1.5 billion mark, but expects to sell more than that this year, he said.

The sales -- part of the company’s focus on “tier one” assets -- have forced Barrick to narrow its five-year annual production range to 4.8 million to 5.2 million ounces. As recently as November, the company was predicting a range of 5.1 million to 5.6 million ounces, based on its portfolio at the time. The miner is forecasting a 30% drop in global gold supply by 2029.

Barrick plans to release 10-year production guidance at its annual general meeting -- which is scheduled for May 5 -- and is thinking hard about whether it should increase its copper holdings, Bristow said.

“We would invest in copper where it comes with gold, or we would invest in copper where we feel that we have a strategic advantage to outperform the big copper-focused companies,” he said. Barrick’s internal hurdle for copper investments is a 15% real rate return, he said.

In December, Bristow floated the possibility that Barrick could one day pursue a merger with Freeport-McMoRan Inc., the largest publicly traded copper producer, or make a play for some of its assets. On Wednesday, Bristow said the idea is just at a conceptual stage but has triggered “an interesting debate.” There are no plans “to run out there and do something” right now, he stressed. “I don’t do hostile things lightly. This is a complicated situation.”

Barrick shares slipped 0.2% to close at US$18.41 in New York on Wednesday, paring its gain in the past year to 38%.

With help from asset sales, the company still has the potential to reach zero net debt this year, he reiterated. That would mark a dramatic turnaround for a miner that saw debt swell after its last major foray into copper in 2011, with the disastrous top-of-the-cycle acquisition of Equinox Minerals Ltd.

The impact of falling global gold production on miners is being mitigated by higher prices. Spot gold averaged about US$1,483 an ounce in the fourth quarter, 21% more than a year earlier, and the haven metal has extended gains this year as the coronavirus weighs on expectations for economic growth.

Higher cash flows allowed Barrick to boost its quarterly dividend by 40% as it reported adjusted earnings of 17 cents a share for the fourth quarter, beating the highest analyst estimate. That followed a 25% dividend hike in the third quarter.