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Barrick's new CEO charts fresh course

Barrick Gold Corp.'s (ABX-T) plan to off-load some or all of a big but underperforming asset sends a clear message about new CEO Jamie Sokalsky: the former number-cruncher means business and is serious about abandoning the grow-at-all-costs mantra, observers tell Reuters.

Sokalsky, who took over at Barrick in June, says he will rein in growth and invest only in assets that promise sizable returns, a relief for investors weary of the sector's almost single-minded focus on production growth, regardless of cost.

Barrick, the world's top gold miner, said on Thursday it is in talks to sell all or a part of an interest in its African Barrick Gold subsidiary to China National Gold Group.

"This is Jamie saying I'm serious about this. We are going to be looking at this hard and if we can derive better value out of assets from, let's say, a divestment, then we will do it," said a source familiar with Barrick's boardroom discussions.

Sokalsky, a Barrick veteran, is tasked with turning around the miner's fortunes and reigniting its share price. Its plan to sell the African unit is one small step in that direction.

Although the price of gold has risen more than five-fold in the last 10 years, Barrick's shares and those of its peers have failed to shine, mainly because of ballooning capital costs and soaring operating expenses.

Barrick produced some 7.7 million ounces of gold in 2011 at total cash costs of $460 US an ounce. Output from African Barrick accounted for 509,000 of those ounces, but total cash costs for these ounces was $692 per ounce.

Hiving off the African arm, 74-percent owned by Barrick, would reduce the miner's gold output in the short term but also lower its average operating costs.

"The move is a concrete step for Barrick's renewed focus on maximizing shareholder value and optimizing the asset portfolio," said BMO Capital analyst David Haughton in a note to clients.

NEW PLAN

Barrick's share price has fallen more than 20 percent this year, mainly because of massive cost overruns at its Pascua-Lama gold mine on the Chile-Argentia border. The project, pegged to cost $1.5 billion back in 2004, is now expected to cost $8 billion.

Though the blowout in the Pascua-Lama budget and operating cost increases at other mines are no fault of Sokalsky, the new CEO faces an uphill battle in restoring investors' faith.

In his first public appearance as CEO on Barrick's second-quarter conference last month, he hammered home one message.

"Going forward, returns will drive production. Production will not drive returns," he stressed repeatedly.

Investors are unlikely to race to give Sokalsky credit for this new era of restraint. But Barrick shares did close almost 4 percent higher on Thursday, following news that it is in talks to sell its interest in African Barrick.

Toronto-based Barrick has also decided to shelve two of its largest development projects - Donlin Gold in Alaska and Cerro Casale in Chile. It is still pressing forward with the Pascua-Lama project, despite the surge in construction costs.

WAIT AND WATCH

Sokalsky spent over a decade as Barrick's chief financial officer, often interacting with analysts and shareholders.

Last month, he tacitly acknowledged that Barrick and the industry as a whole have stumbled, noting that investors have been dissatisfied with capital allocation decisions and this is reflected in the sector's equity valuations.

Going forward, Sokalsky sees a new path for Barrick.

"Every ounce -- every single ounce we produce has to make an acceptable rate of return and have the ability to generate free cash flow, if they don't, we won't produce them," he said during Barrick's second-quarter conference call.

Sokalsky's toughest critic is likely to be his boss, Barrick founder and long-time Chair Peter Munk, who has a penchant for shuffling the management deck if he fails to see results.

"While we do not expect instant gratification from Barrick's new era of restraint, we believe that the company has heard the capital discipline message loud and clear," said TD Securities analyst Greg Barnes in a recent note to clients.

"Jamie Sokalsky is attempting to right a ship that was - with hindsight - listing badly," said Barnes. "We believe that these are the right actions, but it will take some time for them to bear fruit."

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