Barrick could liquidate nickel asset

Vancouver – Answering probing questions about Barrick Gold’s (ABX-T) project pipeline and capital expenditures at the 2009 RBC gold conference in London, England, Barrick president and CEO Aaron Regent said the company may sell off a few non-core assets.

While Regent was somewhat coy about which assets he considered core and non-core, saying: “I’m not going to be too specific on some assets for obvious reasons”, he was still willing to name one property that may soon find its way to the chopping block: Barrick’s 50% interest in the Kabanga nickel project in Tanzania.

“It’s an asset that we’re working…but it’s not core to us,” Regent said. “So at some point in time maybe we will turn that into cash and redeploy into one of (our existing) projects or to help fund an acquisition.”

Regent also cited Barrick’s sale of a 25% silver stream from its Pascua Lama gold-silver project in Chile as a way in which the company has created liquidity from a non-core part of an asset. He did not say whether similar agreements at other projects were in the works, however.

Regent also gave insight into how far beyond gold the world’s number one gold company is willing to go given that Barrick’s project pipeline includes silver-heavy Pascua Lama and a 37.5% interest in the copper-rich Reko Diq project in Pakistan.

“First of all our focus and strategy is on gold and gold production,” Regent said. “But inevitably as you develop these deposits (such as Pascua Lama and Reko Diq) you’re going to have other revenue streams. So I think that is part of the mix.”

But how much non-gold production does Regent see Barrick churning out? While Regent admitted that he is not sure what “the right revenue mix” for Barrick might be, he did say that a 70-30 gold to other metal ratio “seems to be a tolerance point in the market” for other companies he has studied.

With Barrick currently about 85%-gold based, Regent allowed that the company had some room to diversify without losing its golden aura. “We have some flexibility,” he said.

Regent also spoke at length about Barrick’s willingness to take on projects with fairly elevated levels of political risk.

“There are parts of the world we won’t spend a lot of time (in) or we won’t contemplate going into,” Regent said. Calling it an obvious example, presumably due to rampant nationalization that has occurred there, he said: “We won’t go into Venezuela, places like that.”

But that isn’t to say, Regent explained, that Barrick shies away from “tough jurisdictions” so long as potential assets there are “outstanding”. He gave Reko Diq as an in-house example of a world class deposit in a riskier jurisdiction away from which Barrick could not walk.

Regent described Reko Diq as a 5-billion-tonne asset that will run for between 50 and 100 years with additional expansion and exploration potential. “You gotta start there and say ‘ is it doable’,” Regent said. Then, he said, you try to mitigate risks.

“I reflect back on South America, Chile,” Regent said. “Chile in the 1980s was a place people wouldn’t go to because of the political risk. A company I worked for had a chance to buy into Escondida (now the world’s largest copper-producing deposit, 57.5%-owned by BHP Billiton) but turned it away because they didn’t like the political risk.
“Well, the world changes. And so you have to take a longterm perspective.”

Regent, in fact, emphasized that much of the value that Barrick can create comes not so much from potential merger and acquisitions but through its ability to eliminate risk on large projects in tough jurisdictions. “There’s a lot of value you can create by de-risking an asset,” Regent said. As an example he gave the hurdles Barrick had to overcome in permitting Pascua Lama. Though it was a challenge, Barrick, in part because of its size and clout, was able push through permitting on the project.

Ultimately Regent boiled his philosophy on risk taking down to an old adage. It is: “Not betting the farm – maybe taking a bit of hit – but live to see another day.”