Barrick Mining Corporation (ABX) Earnings Call Transcript & Summary

Good morning, everyone. This is Mike Jalonen of Bank of America Securities. And we're very pleased to have our next presenter, Mark Bristow, President and CEO of Barrick Gold. And basically, it's going to be a fireside chat format, and so, there's no slides to advance. If you have any questions, please send them to me. Otherwise, Mark and I will have a nice conversation. And Mark -- for Mark, it's -- I believe, it's good evening, and it's good afternoon for our European friends and good morning for North America.

So Mark, I'll start off.

Yes.

On the -- Thank you for being part of this call. On the Q1 results call for Barrick a week ago, you stated -- restated your goal for gold, Barrick's symbol, to be the most valued gold mining business or, actually, I think you said mining business. What does this entail to be the most valued company in mining?

So as you know, the mining industry is -- and by the way, good morning, afternoon and evening, everyone. As you know, mining is one of those absolute necessities in everyday life, but sometimes an industry that isn't liked by many people. And when we set out to build the new Barrick, we were very clear that we needed to deliver something that had a sustainable brand that can survive in the next 2, 3 decades. And so we focused on the fact that we need the best people, we needed to be modern. We wanted to build our business on a foundation of the best assets. And more importantly, we wanted to be the most valued business. And how do you measure that? We want people to want to work with us. We want our host governments and countries and states and provinces to want to have us as a partner in their country. And finally, we want people to want to own our stock. And so we felt that in this more modern inclusive world, to be an acceptable mining company, you need to have that as an ambition. And that's how we got to the most valued rather than just focused only on profits.

Okay. Thanks for that. We've had a number or several gold presentations earlier today, and the CEOs have led off with efforts by their companies to protect their workforces and communities from the COVID pandemic. I know on your Q1 call, you spent a lot of time discussing that to start the call. Maybe you can provide a synopsis of what Barrick is doing on this subject.

Yes. Sure, Mark. As you know, I grew up and spent most of my career in Africa, sub-Saharan Africa, and pandemics are not new to us. And we've managed through the 2 Ebola pandemics. We are still dealing with an ongoing TB challenge. We managed the HIV pandemic, which ended up killing 35 million Africans. Every day, 3,000 people die in Africa from malaria. So it's an -- I think we have some experience in how to deal with this. And the first point of departure in dealing with any crisis is to be prepared, proactive and respond early. And that's what we did in Barrick, is that we were developing emergency procedures and action plans. We introduced our logistics and redundancy strategy, all in the first part of February. And the most important thing is we engaged in communication and training and sensitization, not only with our workforce, but also our host communities and countries. Because the critical thing in managing this crisis is to do exactly that. And you see the world's coming around to the importance of screening, identification of any type of symptom, isolation, tracing all the contacts and then testing. And so that's what we initiated right up front. We've managed to keep all our operations running. We had a small hiatus in Argentina when the Argentinian government's first reaction was to close down the mining, and then literally a week later, reopened it. But at that paranoia focus, everyday management of the situation, ensuring that your workforce understand the fact that to manage this is the safest way to deal with it rather than just locking it away. And we've been able to operate in Ontario, Nevada, Dominican Republic, Argentina, Chile, of course Tanzania, DRC and Mali, Papua New Guinea and Saudi Arabia. And every one of those countries have a different set of dynamics. And so it's very important, although you have an overall protocol and strategy, to be very clear about understanding the environment in which you're dealing with this unprecedented pandemic.

Yes. You certainly had quite a comprehensive answer on your call, and thank you again for reiterating that. Just wondering maybe how -- if Barrick remains true to its ESG principles, which are quite impressive in this pandemic, is the spending is still there and maybe even more so, I would -- during these days? Thank you.

Yes. I think it's been -- it's actually been a great encouragement to see how the mining industry across the globe has responded to this pandemic and been -- as almost one of the first responders. And certainly, Barrick has played its role in that effort. So -- and of course, Mike, I see commentary about maybe this crisis and the consequential economic stress that it's creating might deter from the responsibility of being a good corporate citizen. In Barrick, and certainly in my career, ESG and the license to operate has been the very foundation and core of our way of doing business. And we have worked very hard to lift Barrick's performance to that level, and we will continue to do that. As you saw in our annual report and our sustainability publication just recently, that we introduced an ESG scorecard on which we measure ourselves and our performance across the spectra of activities that we refer to as our sustainability DNA. And we have no -- if anything, we believe this is a time where the world is going to change. The responsibility of corporations and global businesses is going to be more than less in rebuilding the economy. It's really a post-Second World War challenge. And certainly, it's an opportunity for the mining industry, and we see it certainly for Barrick, to reinforce our commitment -- our partnership commitment to all our stakeholders, of course, including our shareholders.

Okay. We have a couple of questions on the line here, so -- or by e-mail. The first one, your JV partner, Kibali, said there is $500 million in the DRC that the JV is struggling to repatriate. Just he's wondering when this cash will be repatriated and what the possible solution is.

So Mike, good question, something that keeps us awake at night. I think the positive side is that there's absolute acceptance that this is -- this money is ours and it's not part of the reserves or anything in the country. We are working -- there was a hiatus between the Kabila regime and Tshisekedi regime and -- where there wasn't an empowered cabinet. And so it was difficult to work with getting the -- some of the wrinkles in the 2018 mining code ironed out to allow the repatriation of excess cash. We've been working to fix that. We didn't want to do it through the back door. We feel it's important for the mining industry that we -- that it's done properly. And so, by the way, does the President, current Minister of Finance, Minister of Mines and more importantly, the Prime Minister, who's the person and office we're dealing with. We have made good progress and we have -- we are very confident that we will address that. We are building cash significantly. We have also worked to offer some dividend strategy as part of repatriating, not only the cash to pay back the capital to the -- to key shareholders but also to ensure that our in-country partner also benefits from the distribution of cash. And so in the next couple of weeks, we're pretty sure that we'll have that in place. And what's important to us is that we have a lasting solution going forward.

Okay. We have an investor question now that just came in on M&A. Can you talk about how you view gold and copper M&A opportunities at this point of the market? Should gold continue to hold up? Does that make target companies less willing to negotiate in your view? That's the question.

So Barrick set out post the Randgold merger to, as you pointed out earlier, to build the most valued mining company in the world, and we've gone a long way to do this. We said we'll build it on the premise that we rearrange the business from a corporation to an integrated business, flatter management, more accountable executive authority in the regions and on the operations, and we've done that. We also said we'll focus on Tier 1 strategic and Tier 2 assets. Again, we've rearranged the asset portfolio. And today, we've got a very solid, world-leading portfolio of producing assets. And so -- and what the gold price has done, because we allocate capital at a long-term gold price of $1,200, is it really fast-tracked that value vision of the -- that John Thornton and myself bolstered the deal on. And so subsequent to that, we have delivered on 4 key value-creating efforts. The first, of course, is the merger between Barrick and Randgold. The second one was the Nevada gold mining joint venture with Newmont. The sale of Kalgoorlie, which created a lot of value in -- bringing in 2 of the real rising stars of the mid-cap Australian mining industry. And then it was the resolution of a long-standing conflict between Acacia and the Tanzanian government, which incidentally is a key growth opportunity for Barrick today. And then more recently this year, in the quarter 1, was the closure of the Massawa-Teranga consolidation, which again at-market created significant value for all the owners and stakeholders, being it Barrick as an investor and a seller, the Teranga shareholders in the form of the Teranga share price increasing substantially and, as well, the Senegal government benefited from it. And subsequent to those, there's an early-stage deal. You've seen the deal that was closed between Newmont and Goldcorp, and we've had a number of other deals where the industry, the gold industry specifically, has consolidated single-asset businesses. We had the at-market transaction announced yesterday. And there's been a lot of -- which I always said is important. We're now at a situation where the 2 major gold miners, Newmont and Barrick, are right up there with the biggest of the mining industry. And this mining industry, I still believe, needs rationalization and restructuring. And this time around, we as gold miners are also participants in that. So -- and I don't believe anyone can argue the fact that we are in a very dynamic environment globally as a global economy, as public businesses. And so how do we maximize those opportunities that this dynamic environment is going to create. And certainly, Barrick is well positioned with the bench strength of a leading -- world-leading management team, and it certainly has the strongest balance sheet in the industry and the ability to deliver value, as we've demonstrated in the last 15 months. So we see that opportunity. We are a gold-focused business. We do have copper assets. Not all of them are core. And we have very clearly said our focus is Tier 1 gold assets. And to be clear, that is mining opportunities that deliver more than 500,000 ounces a year for more than 10 years at the lower half of the cost curve, or copper that comes with those gold assets, or specifically copper assets that meet our own investment hurdle rates on their own, and that we can demonstrate we have a strategic ability to manage them more effectively than the sort of traditional diversified mining companies. And it's on that basis that we are tracking the variances and opportunities in the market. We've demonstrated that we have the patience to do transactions properly. I'll take you back to the Moto transaction, where we eventually partnered with AngloGold Ashanti to deliver Kibali. The Barrick-Randgold merger took 3 years in the making. And we've got the patience. And this time, we also have the financial muscle to be able to participate in any opportunities that fit our very clear and specified investment filters.

Mark, thank you for that comprehensive answer. Maybe -- you mentioned Barrick having one of the strongest balance sheets in the global mining sector. And by my numbers, Barrick is generating at the current prices $3 billion of annual free cash flow. So what's Barrick's capital allocation strategy with, obviously, this growing mountain of cash?

So we are strengthening that balance sheet, as you pointed out, on a quarterly basis. Right now, we set out to build a strong sustainable business. The 10-year plan we published along with our annual report reinforces that now. We've definitely got runway ahead of us for 10 years, where we delivered real value for our -- all our stakeholders without a big investment in a new mine development. Anything in addition to our 10-year plan adds value on top of that already valuable foundation. And so allocating capital is very clear. We allocate capital at $1,200 gold. We look for a minimum of 15% internal real rate of return on our investment using that long-term gold price. As you and I discussed ahead of this call, gold prices go up and down, as we experienced between 2010 and 2014. And so -- and right now, we are facing a big spike in the gold price, a very dynamic environment, unprecedented global situation that we feel warrants us to continue to strengthen our balance sheet given the strong cash flows we are experiencing today. And we are maintaining our dividend, as we shared with you last week. And then -- and we feel that it's prudent to see our way through this crisis. And once we're at the other side, we will be able to reflect on our ongoing capital allocation and also whether there's a merit in changing our dividend strategy, which right now is based on P&L strength. And we have promised the market we'll revise that once we deal with the balance sheet, and this higher gold price is certainly bringing that forward. At the same time, during this dynamic phase, a strong balance sheet gives us the financial muscle to be able to exploit any opportunities on an opportunistic basis should they arise. So we feel that Barrick is in a standout position to be able to, one, weather the scenario ahead of us; and two, to be able to benefit our owners through any opportunities that might present themselves.

Okay. Maybe drilling down to some of the assets. I was intrigued on the Q1 call that you mentioned that Hemlo was nearing Tier 2 status. What steps does Hemlo have to take to get to that tier? And also, you alluded to reviewing the exploration potential at David Bell and Golden Giant mines that were next door and pass -- and obviously depleted, but maybe you see some potential there.

Yes. Mike, Hemlo has been one of those positive surprises. When we did the due diligence in -- between the Barrick and Randgold team, it was -- the only asset there was a mixed view on whether it was viable or not. And what we did is when we got in this driving seat, we revised the entire Hemlo geological model and we introduced a bunch of young managers. And it's amazing what changes we've seen in that mine. Today, that mine has a life of mine of more than 10 years. We can point to even additional opportunities, which has driven us to really look at that entire Hemlo belt and its geology. And certainly, bringing the cost down into the bottom half of the cash cost curve will deliver that. We need to get to 3 million ounces of reserves, and we're well on track to do that. And then to make sure we maintain the costs at -- in the lower half, which is a very real issue. It's already there because of the grades as we move to focus Hemlo on an underground operation. And really, that's where this asset is. Right now, it's a strategic asset because its value is enhanced through our tax shield that we have in Canada. And at the same time, we now have visibility of getting it to a 3 million plus ounce reserve operation. And still, we see headroom on top of that.

Okay. Good news for the province of Ontario right now. And maybe moving to the Dominican Republic, can you give us a progress support on the plants and tailings expansion study at Pueblo Viejo? Pardon my pronunciation.

Yes, I have the same problem. So Pueblo Viejo is one of those big positive surprises in the transaction between Randgold and Barrick. The expansion project is now well on track. We have completed the processing expansion feasibility study. We've also increased the capacity of the current empowerment infrastructure, and so that takes us out to 2028. We are busy with the permitting of the TSF 3, which is the best of 3 options for a new tailings facility. And once we get that permitted, it effectively unlocks more than 11 million ounces and takes PV from life of mine out to 2028 before dumps processing way into the mid-2040s. It's a very large operation, as you know, that's a -- and that sort of heads up on the life of mine is at a plus 800,000 ounce run rate. So that's where we are with Pueblo Viejo. We have committed the initial capital to proceed with the expansion of the plant. We are very constructively engaged, both with the government and the opposition party. And this is an expansion project that has bilateral support. And at the same time, we are dealing with the preliminary processes in permitting. The permitting process has been delayed because of the COVID-19 restrictions on engagement with the community and also the delay in the Presidential elections. But the positive is that, one, our engineers have managed to extend the capacity of our current infrastructure, allowing us to decouple the 2 projects and keep the expansion plan on track.

Okay. And maybe just moving to the Carlin Trend. As you know, we had a great mine tour of the Carlin Trend for the analysts that Barrick hosted. And certainly, there's a lot of talk of exploration potential, especially at Leeville. Just wondering what the prognosis is for reserve replacement at Carlin Trend, and how the extensions are looking at Leeville going forward.

Yes. So the Carlin complex, which now comprises Goldstrike and Carlin, has enormous potential for life of mine extension. As you know, it's a very big producer already. And those brownfield opportunities comprise Ren, which is between Goldstrike and Carlin; the Rita K Project just near West Carlin; and then -- West Leeville, sorry; and then the Leeville North, it used to be called the Greater Leeville, but we're calling it Leeville North, which has enormous opportunity to the north of Leeville itself. And then on top of that, we have a number of other conceptual -- well, more than conceptual targets because we've put in the first couple of stratigraphic holes to really understand the underlying stratigraphy and confirm the presence of prospective host rocks. And so that whole Carlin Trend, and then even further down Pete Bajo and south of that, we still are unlocking new targets to explore. And I would just add, we've got the same around Turquoise Ridge, Twin Creeks, both brownfield opportunities and new model opportunities. And then, of course, you've got the -- and that -- so those 2 really take, Turquoise Ridge Complex and the Carlin Complex, well beyond the 10 years of a Tier 1 classification. And then Cortez is really -- its Tier 1 status is underscored by the Goldrush project, which is doing very well on track despite the challenges of COVID-19. And then to be followed by Fourmile at -- out at the back end of the 10-year plan. So those are really -- and then, of course, there's still gaps within the greater Nevada Gold Mines portfolio. And the challenge is -- what we've been challenging is some of the conventional thinking about the setting and the controls and the very disparate sort of trends that have been drawn in, and whether there's not a smarter way to unpick the geology. And we've got a great exploration team in Nevada Gold Mines. And I've got no doubt that they will continue to come up with opportunities. And also, we are all convinced there's still Tier 1 discoveries to be made there.

Mark, Bob Smith, the former CEO of Barrick, as you know, in the '90s and in the '80s, he used to say, "Well, Goldstrike, the final chapter has yet to be written." And somewhere in the heavens, he's smiling down, going, "Mark's got it right." Many chapters to go. So -- well, we've come to the end of the call, Mark, the time, but I want to thank you and Barrick Gold for taking the time to participate in this call. And let's hope we're in Barcelona in 2021. Thank you again.

Thank you very much. And thank you to everyone who's listening. I appreciate it.