By Liezel
Hill
Bloomberg News
Wednesday, March 20, 2013
The 10 biggest gold
companies, led by Barrick Gold Corp., spent more
than $100 billion in the past 20 years buying new mines and projects around
the globe. Now they're feeling pressure to throw the strategy into reverse.
Gold Fields Ltd. spun off
most of its South African assets in February. Billionaire hedge-fund investor
John Paulson is calling for a breakup of Johannesburg-based AngloGold Ashanti
Ltd. Barrick, which has 27 mines, is selling assets
after an acquisition and cost overruns helped erase $27 billion of the
Canadian company's market value.
A Bloomberg Index of 14
large gold miners has lost 27 percent in the past year, worse than the 7.2
percent drop in a similar gauge of global oil companies. The gold industry,
which underperformed the metal for five of the last seven years, has tried to
stop the slide by ending gold-price hedges, raising dividends, building
mines, and, most recently, pledging spending discipline. Spinning off or selling
assets may be its next option.
"The next fad is going to be the unbundling of the majors," said
Mark Bristow, chief executive officer of Randgold
Resources Ltd. The Jersey, Channel Islands-based company believes the optimal
number of mines is "four or five, six at a push," he said.
Such moves would follow
the example of international oil companies that have split up to unlock
value. ConocoPhillips, the largest independent U.S. oil and natural gas
producer, spun off its refining unit in May, less than a year after
Houston-based Marathon Oil Corp. listed its refinery network as a separate
company.
Shareholders have grown
cold on further expansion as valuations in the industry declined. The ratio
of the largest gold miners' enterprise value to their earnings before
interest, tax, depreciation, and amortization dropped to 6.3, less than half
the multiple at the end of 2010, data compiled by Bloomberg show.
The gold-mining strategy
of bulking up was led by Barrick, which became the
industry leader in 2006 when it bought Placer Dome Inc. for $10.2 billion.
Now operating across four continents, Barrick saw
the estimated cost of its Pascua Lama mine on the Argentina-Chile border more
than double to as much as $8.5 billion and it took a $3 billion writedown on a Zambian copper mine last month.
Read more here
http://www.bloomberg.com/news/2013-03-20/gold-giants-shrink-to-fit-as-pa...
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