Barrick Gold Corporation (NYSE:ABX) is the largest gold mining company in the world, with its headquarters in Toronto, Ontario, Canada. ABX has four regional business units located in Australia, Africa, North America and South America. Barrick is currently undertaking mining and exploration projects in Papua New Guinea, the United States, Canada, Australia, Peru, Chile, Russia, South Africa, Argentina and Tanzania.
Barrick has a portfolio of 26 operating mines, many advanced exploration and development projects located across five continents, and large land positions on the most prolific and prospective mineral trends. As a result, ABX is extremely geographically diversified since it has operations over a wide range of locations. The Company also has the largest reserves in the industry, with 123 million ounces of proven and probable gold reserves, 6 billion pounds of copper reserves and 964 million ounces of contained silver within gold reserves.
Barrick produced 8.64 million ounces of gold at a cash cost of $282 per ounce, in the bottom third of the global cost curve. In addition, the Company produced 367 million pounds of copper at a total cash cost of $0.90 per pound. The company's production is 38% in North America, 23% in South America and 28% in Asia. With the takeover of Equinox Minerals Barrick's revenue from gold decreases to 80% of total while copper production doubles to about 600 million pounds.
Barrick has the gold mining industry's strongest and only 'A' rated balance sheet, which positions the Company to take prompt advantage of attractive development, exploration and acquisition opportunities as they arise without needing to pause for financing. For example, reserves moved up 34 million oz after ABX acquired Placer Dome, while they were flat for five years before this.
The company is fully leveraged to the rise in gold prices. For years Barrick's hedging strategy has given the company an edge over its competition, but as gold prices continue to rise this conservative approach has hindered profitability, and as a consequence Barrick's growth has been stagnant. The unanticipated duration of the bear market for gold has spurred Barrick to abandon its corporate hedge book strategy (which has improved margins and more than offset higher cash costs) in favor of a non-hedge corporate policy in hope to achieve greater exposure to rising gold prices.
Barrick has been working towards commencing construction after obtaining approval from the Chilean and Argentinean governments. However, Barrick’s production is expected to remain relatively flat until 2010 when both Pascua Lama and Pueblo Viejo are given the green light. In the meantime Barrick will have to weather increasing operation costs. Exploration opportunities within existing plays is one of the more promising features of Barrick’s future growth potential. The company has begun an aggressive exploration program in Nevada at the Placer Dome plays that are likely to yield some lucrative results once underway.
While gold has and always will remain the focal point of Barrick's operations, copper and silver also contribute to the company's portfolio. Though a useful commodity copper is exceedingly less expensive than silver or gold and therefore has little economic impact on Barrick’s growth. Silver accounts for little over 7% of revenue and 2% production.
In 2009, ABX earned a total of $8.14 billion in total revenues. This was only a slight increase from its 2008 total revenues of $7.91 billion. However, despite the increase in total revenues, ABX's net income took a drastic downturn. Between 2008 and 2009, ABX's net income declined from a net profit of $785 million in 2008 to a net loss of $4.27 billion in 2009.
With no control over prices, gold producers stand to lose if they are unable to control their costs. In an attempt to shield itself from volatile price fluctuations Barrick developed a rather large hedge book. As gold prices skyrockted investments in Barrick did not provide favorable exposure to gold price movements. As a result the company was underperforming and decided to truncate most of its corporate hedge commitments. However, if gold prices turn down again, the lack of a hedge could mean that ABX's performance will suffer.
Environmental restrictions and accusations of environmental malpractice have been a perennial challenge for the mining industry. Environmental groups have accused Barrick of a number of environmentally unsound practices. Most significantly, Barrick has come under scrutiny for the use of cyanide leach taling dams for its gold mine projects in Austrailia as well as and the alleged release of approximately seven tons of mercury. In response Barrick has propositioned a multi-million dollar project to spearhead research to reduce the tailings products and erodible waste produced from the mineral extraction process.
After emerging within the gold industry in 1983 Barrick's core strength has been the regional expertise of its operating and development teams. In the current mining environment, an intangible asset such as a collection of mining experts has proven to be an extremely valuable commodity. Barrick's wealth of mining expertise should reaffirm investor confidence in the company's ability to turn a plethora of new projects (most notably Pascua-Lama and Pueblo Viejo) into highly productive plays.
On April 25, 2011 Barrick Gold announced that Equinox MInerals accepted its $7.69 billion takeover offer made just days earlier; the same day Chinese company Minmetals Resources Ltd officially took back the US$6.4 billion hostile takeover offer it had previously made for Equinox. The Minmetals offer was described by chairman Peter Tomsett as being a "lowball price" that "significantly understates our value and disregards the potential of this company, especially in light of the continuing strength in copper prices." Ironically, while Equinox was denouncing the bid by Minmetals it was still attempting its own hostile takeover of Lundin Mining; that bid was dropped when Barrick Gold announced its intentions. When the takeover is complete Barrick Gold will become even more exposed to minerals/metals other than gold, copper production will immediately double to 600 million pounds and revenue from non gold assets increases to 20% of company total.