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This has been the worst month in Barrick Gold Corp.’s modern history. It is about to get worse. On Wednesday, the Toronto-based gold miner will be greeted by some very frustrated shareholders at its annual meeting. The company does not usually face hostility from investors at its AGMs, but this year appears to be different.
Virtually everything has gone wrong for Barrick lately. And as gold began a steep descent last week and the company’s key project was partially halted, the stock price plunged 33% in six days. It is an gut-wrenching freefall for a company of Barrick’s size and it takes the stock to its lowest levels since 1993 when gold averaged just US$360 an ounce.
Remarkably, an even bigger source of investor ire emerged on Friday. Seven of Canada’s largest pension funds announced that they are opposing the US$11.9-million “signing bonus” that Barrick paid to co-chairman John Thornton last year, and plan to vote against the entire compensation committee. Mr. Thornton received a whopping US$17-million in 2012, and he was not the only beneficiary of Barrick’s largesse. Chairman Peter Munk (US$4.3-million), chief executive Jamie Sokalsky (US$11.4-million) and “ambassador” Brian Mulroney ($2.5-million) all received big pay hikes despite a bad year for the stock price.
The compensation looked excessive even before the stock got crushed this month. And while Barrick may settle with the pension funds before the AGM, the pay could overshadow the event.
It shouldn’t, because there are many bigger potential challenges ahead. Analysts have warned that Barrick’s cash flow looks weak if gold prices fall much more than they have in the last week, while Moody’s has threatened a credit downgrade. The future of the crucial Pascua-Lama project is uncertain. The cost base is rising. And the company now has the embarrassment of being worth $4.6-billion less than chief rival Goldcorp Inc., despite having almost triple the gold production.
It leaves two key questions that shareholders will want answered at the AGM: How did everything go so wrong? And how do they fix it?
“I think the stock is getting discounted for two major reasons. One is excessive financial leverage, and two is weak corporate governance,” said Pawel Rajszel, an analyst at Veritas Investment Research.
Barrick cannot control the price of gold, but experts noted that many of its wounds are self-inflicted and reflect poor capital allocation. The $7.3-billion takeover of copper miner Equinox Minerals Ltd. has been a disaster, as it left Barrick with excess debt and was written down by nearly US$4-billion. Barrick also bought oil assets that it is trying to unload, and it controls a number of smaller, high-cost mines that do little for its bottom line. According to reports, a few of those mines in Australia are now up for sale.
The company’s biggest mess is at Pascua-Lama, the giant development project on the Chile-Argentina border. Put bluntly, Barrick botched the development of its most crucial project.
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