Canada Unearthed: M&A is a hell of a drug

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• Barrick Gold’s Mark Bristow pours cold water on M&A, placing focus for C$40 billion gold giant on organic growth
• Development of Pakistan copper asset will help make the gold producer a major copper force, with 450,000t of output annually by 2031
• Scars of early 2010s misadventures still linger for wasteful gold miners

White Lines and M&A, Don’t Do It.

Like Melle Mel and cocaine — something of a phenomenon back in the early ’80s — the messenger doesn’t always pay heed to the message when it comes to mining M&A.

We’ll have to take Barrick Gold Corp (TSX:ABX) boss Mark Bristow to his word when he says he’s taking a cautious approach.

Its closest competitors Agnico Eagle (TSX:AEM) and Newmont Corporation (ASX:NEM) have been big spenders of late (though largely via scrip).

Agnico absorbed Kirkland Lake, owner of Victoria’s Fosterville mine, last year. Newmont is now so far ahead as the world’s most prolific gold miner it isn’t even close thanks to its absorption of Australia’s Newcrest.

C$40 million listed Barrick has sat on the sidelines through all of this, with Bristow growing increasingly strident when questions about M&A are posed.

Wiser heads will remind that M&A normally does more for the seller than the buyer (cf. here). But mines are finite and it can be the only way for some companies to get bigger and give themselves development options.

The Canadian gold giant kicked off the last run of gold merger mayhem with its combination with Bristow’s Randgold in 2018, but Bristow’s long term plans now involve turning Barrick into a copper giant and chasing growth organically.

What unrepeatable thing did Mark Bristow say about corporate action?

Back in 2011, when gold prices were riding high off their post-GFC boom, it got investment bankers calling and cashed up miners spending.

At that point, Bristow told analysts on an eventful call late last week, “the entire mining industry blew its brains out”.

“Every one of them, even Glencore, is selling assets to survive. And the reason I’m here with the Randgold team and along with the Barrick team is because Barrick and the other big gold assets did the same,” he said.

“And for us, we are a business. It is all about business.

“We are not about being big for the sake of being big. We believe in relevance. And there will be times when we have an opportunity to create value through acquisition.

“And we started out the merger with three very aggressive acquisitions … and there will be another time when we get another opportunity to do exactly the same. In the meantime … it is not a strategy to rely on M&A.”

Bristow said there had been a lot of M&A on offer in Canada but that the major had walked from every process it had looked at, saying Barrick had a pathway to grow its output by 30% without M&A at a time when the mining industry in general is “ex-growth”.

Bullish on copper and gold

While most mining companies of its scale and size have seen strong share price gains over the past 20 years, Barrick is an outlier having traded significantly higher in three peaks in the mid-90s, early 2010s and last gold bull run in 2020.

But Bristow said a series of bad purchases that led to something in the order of US$20 billion of write downs from 2010-2013 led to a need to rebuild the Barrick brand after the Randgold merger.

That rebuild ironically includes the Lumwana copper mine in Zambia, acquired in the disastrous Equinox Resources deal in 2011.

Barrick thinks gold production will fall slightly below its target of 4.2-4.6Moz in 2023 after rolling out 1.039Moz at AISC of US$1255/oz in the September quarter, with copper to fall within its range of 420-470Mlb of metal (190,500-213,200t) after churning out 112Mlb at US$3.23/lb.

Barrick has US$4.77b in debt and US$4.26b of cash and equivalents on hand and announced a 10c per share quarterly dividend, though growth initiatives are likely to take precedence over additional returns like buybacks.

It wants to lift copper output, in particular, to around 450,000tpa by 2031. That would help boost gold equivalent output to 6.8Moz at that point in time.

A feasibility study on the Reko Diq project in Pakistan, where Barrick holds a half stake, is due by the end of 2024. Barrick wants to have the future global top-10 producer under construction by 2025 and in operation by 2028. That would dovetail with the expansion of Lumwana to 240,000tpa.

Barrick also expects to restart its minority owned Porgera mine in PNG by the end of the year after three years on care and maintenance, with expansion plans also in trains across its flagship Nevada gold mines and the Pueblo Viejo mine in the Dominican Republic.

Despite its flagged intentions to grow its copper output, Bristow did not respond enthusiastically to questions about whether the miner would take advantage of a 38% dive this year in C$12 billion copper and base metals producer First Quantum Minerals’ (TSX:FM) share price to make a discount play.

Most of that loss came about on a single day last week after the Panamanian Government acceded to requests from protestors to put a long term contract to operate the Cobre Panama mine to a referendum.

Cobre produced over 350,000t of copper last year and almost 140,000oz of gold, with FQM reporting output of 112,734t copper, 45,996oz gold and 891,967oz of silver in the September quarter.

Bristow indicated First Quantum had its own issues to sort out before it became a takeover target.

But he’s bullish on copper and gold long term.

“We know where we are going, we are not going to regret any of the decisions we have made because they have been well made and we can afford our growth and there are not many mining companies that can show 30% organic growth ahead of them,” he said.

“And I think we are well positioned to benefit from the long-term bullish outlook … on copper. And right now, I can’t see much downside risk on gold, just because of the chaotic global environment we find ourselves in, whether it is the global economy or just the geopolitical risk and everything else that goes with it.”

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