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Barrick Gold Corp.’s quest for growth turned it into the world’s largest gold company. Founder and chairman Peter Munk says that’s also what helped send it off the rails.
It would be difficult to imagine what more could have gone wrong for Toronto-based Barrick over the past year. It started with the replacement of its chief executive officer in June of last year, followed by a multibillion-dollar cost overrun at Pascua-Lama, the ambitious gold project it is building in the Andes. The company also took a $3.8-billion charge on a highly-criticized copper acquisition. The company’s stock price has plunged to around 20-year lows.
“If you add to that the softening of the gold price, if you add to that that we had a major writeoff in our copper business … by the early part of this year, it really felt, it really smelt, and it really looked like, the perfect storm,” Mr. Munk told shareholders at the company’s annual meeting Wednesday.
And the bad news continued, as Barrick said Wednesday that it would consider suspending the Pascua-Lama project altogether after a court ordered construction halted in Chile amid allegations the project is polluting local groundwater. Experts say a resolution to the problem could be as much as six months away and add up to $500-million to costs. Shareholders also voted against the company’s executive compensation plan, amid criticism that a new co-chairman had been paid an exorbitant signing bonus of $11.9-million (U.S.).
Barrick and other global miners are paying the price today for rapid expansions launched in the middle of the last decade.
At that time, mining was among the most highly valued of any sector in public markets, and valuations were several times where they are today. Investors started to abandon the sector around the time that merger mania was taking hold, however, with many of them going to exchange-traded funds for risk-free exposure to rising gold prices.
Barrick was among the leaders of that charge, acquiring rival Placer Dome Inc. for an eye-popping $10-billion in 2006 and adding twelve new mines and a number of advanced exploration and development projects to its global portfolio. In 2011, as copper prices were running near all-time highs, Barrick paid $7.3-billion for Equinox Minerals Ltd.
For Mr. Munk, more growth was simply the Barrick way, and the company could not have predicted the attached risks would materialize as much as they have.
“Barrick grew faster, became larger, attracted the best people and it was natural for us that we were not going to rest on our laurels … it was our responsibility to do that,” Mr. Munk said.
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