The last ten years in precious metals mining saw ups and downs like no other industry save for oil and gas. From 2010-2013, gold prices moved from $1,400 an ounce to $1,800 in a frenzy. Then the bear market arrived and the commodity fell steadily to its bottom in late 2015.
During the boom years malinvestments were rampant in the industry. Mining companies snapped up projects and properties wherever they could, all the while piling on debt. Mines only economical at high commodity prices even sold at a premium. Long-term viability didn’t seem to be a consideration. Then the market broke - the price of gold went down. The bad decisions became apparent to both shareholders and analysts. The bankruptcies came and the investors left.
Barrick Gold, one of the largest gold miners on the planet is central to this story.
In 2012 with the bust in the gold price, Barrick’s mismanagement became so apparent to shareholders, they ousted their CEO. The company had numerous issues, but its most high-profile problem lay in South America where it became entangled in an environmental dispute over the Pascua Lama Project on the border of Argentina and Chile. It spent billions in development until 2013 when executives threw in the towel and suspended construction. They would later couple that decision with $3 billion in stock sales. By late 2015, the company held over $13 billion in debt while gold was priced at a low near $1,050. It operated at razor-thin margins.
Between 2012 and 2015, the company’s share price was punished for the issues, having tumbled from over $40 to around $7. Things were dire. Investors craved clearly defined targets that would turn the company around.
During Barrick’s 2016 annual general meeting, then company Chairman John Thornton did just that. “Barrick is back," he told shareholders, and laid out the way forward to profitability. The business needed debt reductions, streamlining, and divestitures of non-core assets. It now had the singular vision to be a leading mining company.
Fast-forward two years to late September, 2018. One of the largest deals in gold-mining history takes place. Barrick and Randgold Resources announce an agreement to merge the two companies. The deal made sense. Roll assets under one roof and lower G&A. The combined entity would hold five of ten tier-1 gold mines on the planet. Randgold CEO Mark Bristow would assume to helm of the new company. Shares of the new Barrick began trading January 2, 2019.
Capitalizing on its momentum, Bristow moved to create a joint venture in Nevada with neighboring company Newmont Mining Corporation. For years, Barrick Gold and Newmont Mining couldn’t reach a deal to either merge or sell assets between the two companies. The timing was now right. By March, they came together and reached an agreement. The fence that separated the two companies would come down. A joint venture in Nevada was born that became the world’s largest gold producer. The new business would produce 4 million ounces of gold annually.
Since 2015, Barrick’s financial position is positive. Its business strategy coupled with an increasing price of gold saw the company reduce its debt from $13 billion to less than $500 million in 2020. The company reported earnings in 2020 of $0.50/share with record cash-flow of $2.3 billion. It met production targets that year with 4.8 million ounces of gold produced despite COVID-19. More importantly, Barrick achieved debt-free ambitions at the end of 2021.
Barrick has a great turnaround story, one of the better tales in an extremely difficult industry. Assuming the price of gold remains at current levels or above, the company’s best days are likely ahead.