By Alistair MacDonald
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 28, 2020).
Newmont Corp.'s lead over bitter rival Barrick Gold Corp. has
shrunk after both made big acquisitions. Now the world's biggest
gold producer is betting high dividends and its new mines will
drive future stock growth.
Newmont, America's largest miner, is trying to improve
operations at some of the gold mines that it acquired as part of
its $10 billion deal for Goldcorp Inc. The Denver-based company
says the problems have been fixed and is betting that sharing more
of its profits with shareholders will attract generalists back to a
sector they have avoided for years.
Barrick Gold, meanwhile, has seen more immediate returns from
its $6 billion purchase of South Africa's Randgold Resources Ltd.,
and shares of the Canadian miner have outperformed Newmont over the
past year. However, some investors -- including its largest one --
have raised concerns about the company talking about bulking up its
copper holdings.
"The Barrick-Randgold deal has gone well, but Newmont has more
upside currently if it can execute its plan of optimizing each of
Goldcorp's mines," said Chris Mancini, an analyst with Gabelli Gold
Fund, which owns both stocks.
The divergent performances and strategies are another step in
the decades-old and sometimes bitter rivalry that also has included
several unsuccessful attempts to merge. The two companies do
operate mines together in Nevada, a massive joint venture that
investors consider a success.
Barrick's shares have risen 79% since it detailed plans to buy
Randgold in September 2018. Newmont's stock price is up 27% since
announcing its Goldcorp deal in January 2019. Both stocks were
boosted by a 22% rise in the price of gold since the start of last
year.
Barrick, under new Chief Executive Mark Bristow, has paid down
debt, sold assets, increased cash flows and worked to fix a
long-running problem in Tanzania. Investors have said Mr. Bristow,
who became Barrick CEO after heading Randgold, was a big gain from
the deal.
More recently, though, some investors have been unnerved by Mr.
Bristow's talk of buying more copper assets and combining with
Freeport-McMoRan Inc., a predominantly copper focused U.S. miner.
Freeport CEO Richard Adkerson said he isn't in a position to pursue
big strategic deals, a potential problem for Mr. Bristow, who told
Bloomberg News he wouldn't go hostile.
Mr. Bristow and Barrick Gold declined to comment.
The idea of stocking up on copper, whether through Freeport or
other acquisitions, is upsetting some investors whose remit is just
gold. Joe Foster, who runs the VanEck International Investors Gold
Fund, wants companies in his portfolio to produce at least 80% of
their revenues from gold, and stocking up on copper or combining
with Freeport could take the company below that. Van Eck Associates
Corp. is Barrick's largest investor, according to FactSet.
"I would have to consider my position" as a Barrick investor,
Mr. Foster said.
Investors typically buy gold miners as a play on gold. Gold
miners have higher valuations than their peers in copper.
Currently, North American-listed gold companies trade at 7.4 times
earnings before interest, taxes, depreciation, and amortization,
according to Royal Bank of Canada. North American-listed
base-metals companies trade on 6.6 times Ebitda.
Newmont, in its deal for Goldcorp, inherited some mines that
have been disappointing. Goldcorp's Peñasquito and Musselwhite
mines, for instance, were idled because of a blockade and fire,
respectively.
Newmont CEO Tom Palmer said problems at Peñasquito and
Musselwhite are resolved and Goldcorp's overall portfolio is far
from a disappointment.
"They're very good deposits, [with] very good infrastructure,
but they were underperforming under Goldcorp's stewardship, and we
can deliver good value from them," Mr. Palmer said in an interview.
Some analysts, though, remain skeptical.
Newmont's deal will achieve greater cost savings than the
company first projected, Mr. Palmer said. The company now forecasts
$500 million in savings a year in 2021, up from the $365 million
first envisaged.
Newmont has begun increasing its payouts. This month, it
announced what it says is the largest dividend in gold mining, with
an increase of 79% to 25 cents a share. In December, the company
started a $1 billion share buyback program.
"This opens us up to a generalist investor," Mr. Palmer
said.
Newmont shares have had more momentum in recent months, more
than doubling the return seen in Barrick's stock price since
October. Analysts also say that because Barrick's deal happened
months earlier, its benefits have had more time to accrete.
A test will come when both companies report their annual results
next month. Newmont is projected to report a 34% jump in annual
sales to $9.72 billion, according to analysts surveyed by FactSet,
while Barrick's sales are seen rising 35% to $9.75 billion.
--Jacquie McNish contributed to this article.
Write to Alistair MacDonald at alistair.macdonald@wsj.com
(END) Dow Jones Newswires
January 28, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Barrick Gold (TSX:ABX)
Historical Stock Chart
From Feb 2024 to Mar 2024
Barrick Gold (TSX:ABX)
Historical Stock Chart
From Mar 2023 to Mar 2024