By Judy McKinnon
Barrick Gold Corp., the world's biggest gold miner, posted a 90%
drop in quarterly profit on lower gold prices and sales amid
questions about its direction after a failed merger effort with
Newmont Mining Corp.
The Toronto-based firm on Wednesday reported first-quarter net
earnings of $88 million, or 8 cents a share, down from $847
million, or 85 cents, a year earlier. But the results slightly beat
analysts' expectations on higher-than-expected cost savings.
Analysts say Barrick appears to be addressing their concerns
about costs and the company's large debts, and has a solid base of
productive mines in the Americas. But, like all gold miners, the
company faces a tough environment of lower gold prices, high costs
and the increasing difficulty of finding easily accessible,
high-grade gold.
Barrick said that it cost $100 less, or $833, to mine every
ounce of gold in the first quarter over the same period last
year.
Gold prices slumped 28% in 2013, the largest annual decline
since 1981, as investors dumped gold and picked up other assets,
such as stocks. Gold has been on the rise so far in 2014 and
currently trades around $1,299 an ounce.
For Barrick, "it's slowly but surely," said Phil Russo, an
analyst at Raymond James. "But they have still got some tough
decisions to make."
Barrick's results came the day founder Peter Munk stepped down
as chairman of the company he built up from one mine in 1982 into
one of Canada's largest companies. But the firm he leaves is coming
off the worst year in its history, when much of the damage was
inflicted by $11 billion worth of equity write-downs related to
more recent empire building.
Mr. Munk handed the reins to John Thornton, the former Goldman
Sachs banker who has been criticized by some Barrick shareholders
for a $9.5 million 2013 pay packet. On Wednesday, 80% of investors
voted to accept that compensation plan and voted in the four new
directors who Barrick hopes will put an end to concerns that many
of its directors lack independence.
Still, not all investors were happy.
"We are troubled, and somewhat disappointed, by the newly
constituted board's decision not to take this opportunity of a
fresh start to suitably convince shareholders that things will be
different," Catherine Jackson, the corporate-governance adviser of
Dutch pension fund PGGM Vermogensbeheer B.V., said at the general
meeting. "Real board independence continues to remain an issue at
Barrick Gold."
Mr. Thornton led the talks with Newmont that ended in acrimony
Monday, with each party blaming the other for killing a deal that
the companies had hoped would result in about $1 billion in cost
savings.
On Wednesday executives declined to comment on talks, which had
been largely welcomed by analysts. "The termination...raises
questions on the next step change in the cost base for each of the
companies," said David Haughton, an analyst at BMO Capital
Markets.
Barrick said it is working on plans to deal with a range of
market conditions that could include closing or expanding certain
operations and disposing some assets. The company emphasized the
importance of five of its biggest mines in the Americas that
together produce 65% of its global output and were crucial to the
merger plan with Newmont.
The company's focus on the Americas is likely to stoke
speculation that the firm could slim itself down even further to
its operations in that region. Under the now-abandoned proposed
terms, the merged companies were set to spin off mines in Australia
and New Zealand, an idea that many investors welcomed.
Write to Alistair MacDonald at alistair.macdonald@wsj.com and
Judy McKinnon at judy.mckinnon@wsj.com
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