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Is Barrick a better buy without Regent?

Tags: Barrick Gold
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BEST OF BNN: Barrick Gold fired chief executive Aaron Regent this week, citing its disappointing stock performance as the main catalyst for the change. With Regent out of the corner office and CFO Jamie Sokalsky in, is Barrick now a good buy? One well-known portfolio manager tells BNN he sold his $5-million position earlier this year, and a change in the C-Suite will not alter his decision.

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Barrick fires chief Regent; CFO appointed to top job

BNN.ca staff, June 6, 2012

Aaron Regent is out as chief executive of Barrick Gold (ABX-T), and CFO Jamie Sokalsky has been appointed to the top job. The company cites its disappointing share performance as the main reason for the change, while sources tell BNN the move was a result of conflicting strategies on the miner's future direction.

"We are fully committed to maximizing shareholder value, but have been disappointed with our share price performance. Our Board has every confidence in Jamie's experience and commitment to take our company forward," said Peter Munk, Barrick founder and chairman, in a statement.

But one source close to the company tells BNN’s Howard Green that the real issue was corporate strategy.

“This wasn’t around performance of the company, this was around the direction of the company,” the source, who asked not to be identified, said.

Recent moves -- such as dividend hikes -- to improve share performance failed to significantly boost the share price.

The source says the discussion about firing Regent happened “pretty quickly” and came after a telephone board meeting on Tuesday night.

Regent was appointed CEO in January 2009 and led the company's recent move into the copper market with the $7.68-billion acquisition of Equinox Minerals. The purchase was widely criticized by shareholders over concerns that the world's largest gold miner was losing its focus. Much of that criticism was directed at Regent.

At its annual meeting after the copper deal was announced, Munk defended Regent's decision and assured investors that Barrick remains focused on gold.

"Categorically, and hear me loud and clear, this company has been built on creating the greatest gold company ever," Munk said at the time. "Who is so idiotic to kill the goose that laid the golden egg?"

Regent espoused the fundamental value of copper in a recent interview with BNN.

"We're very bullish on the copper price, we think the fundamentals are very strong and that's evident when you look at today's copper price -- notwithstanding all the uncertainty in the world today, copper hung in there quite well and that tells you something," Regent told BNN in February. "Our focus is on gold, that's our anchor business, but copper will be a growing part of our production mix, but our base business is gold and given our size and scale it's hard to get away from that."

The source tells BNN that the Equinox deal was “not an issue” in Regent’s firing, adding that Regent is “disappointed” about the decision.

Ross Healy of Strategic Analysis Corp. and longtime Barrick shareholder tells BNN that Regent could be taking “one for the team… because it is hard to make a case for firing him on all of our data unless the Equinox idea was his, in which case he should have been fired earlier.”

Since Regent took the helm, Barrick’s share price has climbed 3.9 percent, short of the 13.3-percent gain by the S&P/TSX index of gold companies. Nevertheless, since the takeover of Equinox Minerals, Barrick shares have fallen roughly 7 percent, while the broader TSX gold index has slipped 18 percent.

And while some analysts and investors said they were caught off guard by the announcement, Morningstar analyst Elizabeth Collins tells BNN there were signs of what was to come.

“It shouldn’t come as too much of a surprise,” she says. “At the annual meeting for Barrick on May 2, Peter Munk discussed his disappointment on behalf of all shareholders that the despite a high gold price and despite many of the company’s accomplishments, its share price hadn’t seen a commensurate performance. And from a shareholder perspective he said that’s what really matters…maybe that was an early warning sign this was in the works.”

One high-level mining industry source tells BNN that while the bid for Equinox was a poor move, it hasn’t hurt Barrick more than its peers. The source says a bigger problem is co-chairman and founder Munk, who continues to have a major influence over the company even though his share ownership has shrunk.

In addition to Regent`s firing, John L. Thornton, currently a Barrick director, has been appointed co-chairman. The changes are effective immediately. The move to a co-chair role is part of an orderly transition for the position, one source told BNN, adding that Munk is “not able to be as active” as he once was.

New CEO Sokalsky joined Barrick as treasurer in 1993 and took the CFO post in 1999. Previously, he was an executive at George Weston Limited for ten years.

-with files from Howard Green

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