Seeking Alpha
Long only, value, contrarian, gold & precious metals
Profile| Send Message|
( followers)  

Summary

  • Barrick Gold announced it is scrapping its corporate development team with more cuts to come.
  • We pointed out costs were high and this is another step in the right direction to drop costs.
  • These cuts do not affect production totals at all and will contribute directly to lower all-in costs per ounce.
  • The corporate development team was responsible for evaluating potential acquisitions, so we think Barrick will not be making major acquisitions any time in the near future.

Barrick Gold (NYSE:ABX) announced that it is scrapping its corporate development team and more cuts are in the works. The corporate development team, which is responsible for identifying and evaluating assets worth buying, is being completely disbanded. This is part of efforts by the company to significantly cut costs across all operations and optimize the company's existing portfolio.

In our previous analysis on the all-in costs of Barrick Gold, we noted that the company's core costs were well above the price of gold even while gold production dropped, and that they would need to make efforts to rein in costs even further. This shows us that the company continues to actively cut costs in an effort to make production profitable, and investors should note that the cuts to the corporate development team are cuts that do not affect current production. This is something that the company needed to do and investors should stay tuned to further efforts because each one of these cuts to overhead expenses directly cuts from all-in gold production costs - with additional cuts we could see Barrick surprise investors in the next few quarters with much lower production costs than expected.

Another takeaway that investors should get from this news is that with these cuts Barrick is going to be very passive when it comes to takeovers of junior miners and explorers. The fact that the company is completely disbanding the unit in charge of analyzing and evaluating assets worth buying obviously means that it won't be buying many assets. So investors owning companies that are potential Barrick takeovers should look elsewhere for buyers or hope that their companies can last until the gold price hits much higher levels and Barrick once again starts looking for takeovers, but for now this move suggests that Barrick is out of the acquisition market for the foreseeable future.

Source: Update: Barrick Gold Announces Disbanding Of Corporate Development Team