In recent weeks the one thing that troubled me about the recovery path of Barrick Gold (ABX) was news that they might shut down their world-class mine Pascua Lama high in the Andes athwart the border of northern Chile and Argentina. This likely was media hyperbole and/or a bargaining ploy. Their appointment last spring of senior Chilean mining executives to interface with local and national governments was an important part of moving the project from environment protection to mine development targeting 2016 operation. The December 4 news from Co-Chair, John Thornton (already acting as what he next year will be formally, Chair) that ABX will not sell or take partners in Pascua Lama was good news for stake holders, for the sector and industries worldwide. Pascua Lama has 676 million oz. silver reserves (which likely will increase with operations) and 17.9 million oz. gold reserves.
Two other important points emerged from the press conference: firstly, ABX will not sell off its silver and copper interests which John Thornton and the new Board are well-suited to parlay into commercial success. Secondly, the nomination of four new independent Directors and a COO, most with extensive backgrounds in engineering and mining is precisely what ABX needed at its top decision-making levels to maximize its top reserves and rich, low cost operations. In my view, the company now not only is undervalued but a strong buy. While the nature of action in the sector and debt that will take a couple of years to pare down substantially, the path now should ascend for ABX. Moreover, growing ex-USD trading arrangements from Tokyo to Frankfort to Toronto and the structural economic damage wrought by fiat fiscal policies indicate that a new world reserve system is developing. Gold will gain a significant role in these arrangements.
Along with retention of Pascua Lama, the additions to the Board of ABX are the big story today, one that will generate positive returns and growth going forward. Let's review the prospective new Directors and COO and their backgrounds. Founder and co-Chair, Peter Munk will step down formally at the ABX General Meeting next spring: his critics will get their wish. My archive of focus articles on ABX including management issues is here.
Nominated COO James Gowans is an experienced miner who has worked at DeBeers SA and DeBeers Canada. In PMs (precious metals), he spent 8 years at Placer Dome, including as Executive VP for Placer Dome Canada. He is General Manager of the Red Dog zinc mine and a Director at Cameco (CCJ), the West's major uranium miner. Mr. Gowans has a degree in Mineral Engineering.
Prospective Independent Director Ned Goodman has made transformative and enduring contributions to Canada's mining industry and capital markets as a company-builder at Kinross (KGC), Dundee Precious Metals and IamGold (IAG). He is President and CEO of Dundee Corporation investment counseling. He has degrees in Geology from McGill University and an MBA from the University of Toronto.
Perhaps the most important nominations are of Dr. David Naylor and Ernie Thrasher. Dr. Naylor is a neurophysiologist and former President of the University of Toronto, the largest in Canada, who just finished his tenure in October. Dr. Naylor has been active as a senior policy advisor to domestic governments for 25 years, using skills constantly applied in industry. Not least important for collegial affiliations, pooled resources and joint projects, he is a Rhodes Scholar with more than 300 scholarly publications.
Mr. Thrasher would extend the mining and resource expertise of ABX through his experience as Founder of Xcoal Energy and Resources, a leading world supplier of metallurgical coal. He has 34 years of experience in the coal mining industry including mine operations, procurement, sales, and trading. He was previously President of AMCI Export Corporation and Executive Vice-President Marketing at AMCI International, where he was responsible for marketing and trading of coal produced in the Americas, Russia, South Africa, Indonesia, Australia and China: this expertise will help coordinate the global operations and synergies of ABX. Joining him as prospective Board member is Nancy Lockhart with experience is in Finance, property management, health, safety and environmental governance.
The operational changes and increased profitability resulting from these changes will begin to have major effect by 2H 2014. However, ongoing discussion and input from the prospective new board members should begin soon. This will bring positive changes in perspective and sentiment from fund managers and retail investors that will boost ABX's share price. A good ride should begin.
The day of the announcement saw a strong bounce in bullion prices and most miners. ABX traded between $15.26 -15.85 and closed at $15.68. Its recent share tender retired significant short term debt. Gold bullion closed up $16 Dec. 4 at $1241 / oz. Given prices at deep lows with maximal bearish sentiment, if you have investable cash it might be time to nibble on the gold bull ETF (NUGT) whose secular low signaled the pit of despair. In any case, ABX has solidified its strategy, management and prospects and looks like a strong buy. Keep in mind the sector's volatility as well as its merits and avoid getting over-excited or inordinately anxious. Patience and positive outlook should bring rewards after much pain.