Bloomberg News

Barrick May Acquire Smaller Mines as Part of Expansion Drive

November 13, 2011

(Updates with closing share price in 15th paragraph.)

Nov. 11 (Bloomberg) -- Barrick Gold Corp., the world’s largest producer of the precious metal, may buy smaller assets near existing mines as part of its strategy to boost output.

Barrick will look at such opportunities while also focusing on larger, “substantive” projects, Chief Executive Officer Aaron Regent said in a Nov. 9 interview at the company’s Toronto headquarters.

“It’s almost like a brownfield expansion, if there is a small mine that we discover or potentially acquire, because you bolt it on to existing infrastructure,” he said.

Regent, 45, says Barrick wants a “balanced approach” to increasing production that includes acquisitions, project development and finding deposits through exploration. World gold supply will remain constrained even amid rising prices because few big new deposits have been discovered, he said.

“The industry is going to continue to struggle to maintain supply,” he said. “It might go up a little bit, but then it’s going to come back down.”

Barrick is forecasting its own gold production will be 7.6 million to 7.8 million ounces this year. Output was 7.8 million ounces in 2010. The company is targeting annual output of 9 million within five years.

Gold prices have climbed for 10 straight years and reached a record $1,923.70 an ounce on Sept. 6 in New York. Gold for December delivery rose 1.7 percent to $1,790.10 today on the Comex. There’s “a lot of room” for the price to increase further, Regent said. He declined to make a forecast.

Equinox Deal

Barrick increased its copper output with its July purchase of Australia’s Equinox Minerals Ltd. in July for C$7.5 billion ($7.4 billion), which gave it a mine in Zambia and a development project in Saudi Arabia. That deal hasn’t altered Barrick’s strategy, Regent said.

“We’re really focused on trying to acquire or discover world-class, long-life deposits,” he said. “When these assets become available, you’ve got to take a real hard look at them.”

It’s unlikely that Barrick will pursue large acquisitions, George Topping, a Toronto-based analyst at Stifel Nicolaus & Co., said today in a telephone interview.

“I think anything they do would be small,” said Topping, who rates the shares a “buy.” Reducing debt levels is “job one” for the company.

Lower Grades

Barrick’s Pueblo Viejo mine in the Dominican Republic and Pascua-Lama mine on the Chile-Argentina border are scheduled to start production in 2012 and 2013 respectively. The company is also studying nine other development projects.

Lower-grade gold deposits, which only become economic at higher gold prices, need to operate at high volumes to be profitable, Regent said. That means they may become more expensive to build.

“The capital costs of these lower-grade deposits are going to be in the billions of dollars,” he said. “There’s not a lot of companies in the gold space” that can take on projects costing $3 billion to $5 billion, he said.

Barrick rose 3.3 percent to C$53.72 in Toronto. The shares have increased 1.1 percent this year, while the Philadelphia Stock Exchange Gold and Silver Index fell 6.3 percent and gold futures gained 26 percent.

Regent said gold equities will outperform the metal in the future. He said he doesn’t expect to see a return to hedging, or forward-selling, by producers.

“I think the market has made it very clear that they are buying a gold equity because they want the exposure to the gold price,” he said.

--Editors: Steven Frank, Jessica Resnick-Ault

To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.


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