Barrick Gold Corp. needs to “think big” when it comes to acquisitions, with a new report suggesting now is the time to refill its project pipeline to avoid steep production declines in the coming years.
“Barrick is the world’s largest gold miner and – like a supertanker – has to move early to avoid bad outcomes,” John Bridges at J.P. Morgan told clients on Thursday.
The analyst noted that while Barrick’s improving share price could allow it to buy some smaller miners, it also needs to look for large mines, albeit ones that don’t add too much stress from an operational perspective.
“Now is probably the time to think about reserve replacement,” Bridges said, noting that roughly a third of Barrick’s reserves at at projects with no current mine building plans.
Even when including the company’s four new projects under study, the analyst projects that gold production will fall into the next decade.
“While 2020 seems distant, the long time line for new projects requires miners to think well ahead or buy assets when opportunities appear,” Bridges said.
He put together a list of miners that appear to offer earnings accretion based on several metrics. It demonstrates that assets in the Southern Hemisphere, due partly to weaker commodity currencies, are generally more attractive.
However, Barrick’s failed bid to buy Newmont Mining Corp. in 2014 suggests it wanted to focus on mines in the Americas.
AngloGold Ashanti Ltd. tops the list with 137 per cent total potential accretion, followed by Newcrest Mining Ltd. at 32 per cent and Yamana Gold Inc. at 15 per cent.
Newmont is next at six per cent, while names like Pretium Resources Inc., Torex Gold Resources Inc., Detour Gold Corp., Goldcorp Inc. and Agnico Eagle Mines Ltd. are all expected to offer negative total accretion.
“Today Barrick faces a falling production profile but there don’t appear to be any large, project-rich potential consolidation opportunities like Placer in the early 2000s, and in any case the timeline for new projects has extended such that it might make sense for Barrick instead to consider buying a large operating company with longer-lived assets,” Bridges said.
The analyst highlighted the need for large producing mines in order to make operational management practical, so he review what companies have such assets.
He found that only Newmont, Goldcorp, Newcrest and AngloGold have more than one mine in the world’s top 30 producer list, and also have the potential to consolidate a large group of resources.