Speaking at Barrick Gold’s (TSX: T.ABX, Stock Forum) Annual General Meeting in Toronto on Wednesday, founder and Chairman Peter Munk described what he called a “perfect storm” that has hit the gold mining industry and its share prices.
“Trees don’t grow to the sky, and there’s a limit to this bonanza for the previous 10 or 12 years that covered up all kinds of mistakes and faults and missteps (in the industry) purely by having a higher gold price,” Munk asserted, referring to recent investor pessimism towards the gold mining industry.
Munk went on at length about the challenges his company faces in light of what he called “ever growing resource nationalism” by governments throughout the world.
He was likely referring to Barrick’s operations in Latin America, specifically Pascua-Lama on the Chile/Argentina border and Pueblo Viejo in the Dominican Republic, in which the government recently asked Barrick to accelerate and significantly increase its share of the benefits from the mine, largely as a result of higher gold prices in recent years.
Barrick’s founder had some harsh words concerning the current regulatory environment in which his company operates, calling new regulations “aggressive” and driven by “highly competent lawyers, mostly from the United States,” that put pressure on foreign government to initiate lawsuits.
Munk cited this as a big reason why the costs of its Pascua-Lama project have skyrocketed from the original $3 billion to the current estimate of $8 billion.
Barrick’s board and management also attribute the slide in the share prices of gold miners to the creation of gold ETFs in 2004 that, ironically, were initiated by the big gold producers such as Barrick and Newmont. Munk estimates that about $140 billion of investor capital have flowed into these products instead of boosting gold equity valuations.
Barrick’s Chairman, though, acknowledged that the gold miner has made its own mistakes, which has caused the company’s share price to suffer.
Jamie Sokalsky, Barrick’s President and CEO, also echoed these shortfalls as a result of what he called a “tough and challenging year” for the company, admitting its share price was disappointing compared with its peers.
Sokalsky outlined that going forward the company will focus on risk-adjusted returns and free cash flow, as well as reducing debt over time. He added that Barrick has no plans to build any new mines.
Sokalsky said Barrick’s priorities for 2013 include clarifying regulatory matters at Pascua-Lama in addition to advancing the company’s Goldrush discovery, which is located approximately six kilometers from its Cortez mine in Nevada.
In fact, 40% of Barrick’s 2013 exploration budget has been allocated to Nevada, which could signal a shift in the company’s growth strategy towards more politically-favourable jurisdictions.