Barrick Mining (B) is facing growing resistance from major shareholders over Chairman John Thornton’s plan to take some of the gold producer’s most valuable North American assets public, Bloomberg News reported Sunday.
The proposed initial public offering would include Barrick’s (B) Nevada operations, its Fourmile discovery and a mine in the Dominican Republic. Barrick (B) would retain majority ownership while selling a minority stake to public investors.
Portfolio managers at Van Eck Associates, Mackenzie Financial and Franklin Equity Group have opposed the strategy. Some argue existing Barrick (B) shareholders would effectively surrender part of their exposure to the company’s best assets to new investors.
The dispute is likely to draw attention when Barrick (B) reports quarterly results Monday.
Investors question strategy
Barrick (B) argues that separating the North American assets would allow the market to assign them a higher valuation without the drag of more troubled operations elsewhere in its portfolio.
The Nevada business is particularly important. It forms part of the world’s largest gold-mining complex and generates more than half of Barrick’s profits, even though production has declined in recent years.
Some investors see little reason to sell a stake in those assets. The proposed transaction could dilute existing shareholders’ interest in the operations by as much as 15%.
The structure also faces complications because Barrick’s Nevada complex is jointly owned with Newmont, which has disputed Barrick’s management of the venture and contends its approval may be required for an IPO.
For Barrick (B) shareholders, the debate comes down to whether an IPO can unlock a higher valuation for its best mines or merely transfer some of their future upside to new investors. The stakes are especially high because Barrick (B) has struggled to capitalize fully on historically strong gold prices. Its production has declined, its shares have lagged major rivals and Nevada remains critical to earnings. A successful restructuring could expose the value of those assets, but it won’t by itself solve the underlying operational problems.
Pressure on Thornton
The controversy is also intensifying scrutiny of Thornton, who has chaired Barrick (B) since 2014.
Barrick (B) has underperformed rivals Newmont and Agnico Eagle during his tenure and slipped to third place among global gold producers last year. Former CEO Mark Bristow was dismissed in September after repeatedly missing internal targets.
Some shareholders are now directing their frustration toward Thornton himself. Mackenzie portfolio manager Benoit Gervais has publicly suggested it may be time for a change in the chairman’s office.
Thornton also received only 81.1% shareholder support in the latest vote, below the approval levels for the chairmen of Newmont and Agnico Eagle.
Barrick’s (B) recent operating results have provided some encouragement. First-quarter gold production exceeded expectations. Still, critics argue that restructuring ownership of Nevada won’t fix its production problems.
That leaves Monday’s earnings report carrying an extra burden. Investors won’t just be watching gold output and financial results. They’ll also be seeking evidence that Barrick (B) can improve its prized North American operations before asking shareholders to give up a piece of them.