Barrick turns to layoffs to cut costs

VANCOUVER – With the price of gold down more than 20% this year, its share price down more than 50% in eight months, and setbacks piling ups at its operating and developing mines, Barrick Gold (ABX-T, ABX-N) is laying off 30% of its corporate staff.

The move puts Barrick on a growing list of mining majors turning to layoffs to help cut costs. Fellow gold miners Newmont Mining (NMC-T, NEM-N) and Newcrest Mining (NCM-A) have also announced layoffs of late, with Newmont eliminating a third of the positions at its Denver headquarters and Newcrest, Australia’s largest listed gold miner, closing its Brisbane office as part of an effort to slash overall spending by 20%.

Barrick is cutting about 100 office positions, most of them from its home base in Toronto where the company has until now employed about 300 of its 400 corporate staff. Regional offices will also see jobs eliminated. The move is part of an effort to “streamline the organization and manage costs in a challenging business environment,” the company said. Barrick employs roughly 25,000 people around the world.

Barrick also announced a reduction in its 2013 capital spending plan. The major now expects to spend between $5.2 and $5.7 billion this year, down from a previous budget of $5.7 to $6.3 billion.

CEO Jamie Sokalsky announced the layoffs at a town hall meeting with staff in Toronto and sources say he was visibly emotional making the announcement. It’s been quite the month of layoffs for the world’s largest gold miner: a week earlier the company cut 60 to 65 jobs at its US operations and a few weeks before that Barrick eliminated several dozen mining positions in Australia.

Sokalsky took over as CEO a year ago and his tenure has been marked by a steadfast focus on cutting costs and increasing profitability, despite a series of significant setbacks. The latest came last month, when Chile fined Barrick and ordered it to halt all work at its massive Pascua-Lama project on the Argentinean-Chilean border due to environmental violations. The fine and work stoppage added to the tarnish on the battered project, where an initial US$3-billion capital cost estimate has ballooned to US$8.5 billion.

Barrick’s troubles are not limited to Pascua Lama. In January China National Gold walked away from a multibillion-dollar deal to buy Barrick’s 74% stake in African Barrick Gold (ABG-L), which the major spun out two years ago. And in February the major took a $3.8-billion impairment charge against its Lumwana copper mine in Zambia, a mine it acquired in a $7.3-billion takeover of Equinox Minerals but one that has failed to live up to expectations.  

The price of gold is not helping. After peaking above US$1,900 an ounce in late 2011, gold has fallen below US$1,300, recently touching a three-year low of US$1,269.46 per oz. Copper prices are also struggling, having declined 16% since the start of the year to hover only a few cents above the psychologically important $3-per-lb. mark.

Low commodity prices are making a tough environment tougher for the world’s mining companies. In the heady days before the recession many global miners seemed in competition to grow through acquisitions, a race that produced a pile of deals that today seem highly overpriced. When the recession hit, those high-priced projects changed from propellants of growth into financial sinkholes and companies were forced to rethink their strategies.

As a result, mining majors are now focused on containing costs, reducing debts, and improving profits, but it is not proving easy. Many have put assets up for sale but, with everyone battening down the hatches, there are few buyers. Barrick’s failure to sell its 74% in African Barrick is one example; Rio Tinto‘s (RIO-T, RTP-N) recently decision to take its $1.3-billion diamonds business off the market because of a dearth of buyers is another. In fact, Rio is having trouble finding buyers for any of the half dozen assets it has on the block, which include a majority stake in Iron Ore Company of Canada, a set of coal mine assets in Australia, the company’s Pacific Aluminum arm, and its Northparkes copper mine.

Barrick’s share price lost 43¢ on news of the layoffs to close at $17.28, after hitting a new 52-week low of $16.56 in intraday trading. Eight months ago ABX shares were worth more than $40. Barrick has just over 1 billion shares outstanding.