With its multimillion dollar bid for Equinox Minerals, Barrick Gold recently decided to diversify into copper. This may reveal that it has only limited ways to grow, namely by changing production strategy or seeking expensive, large deals with intermediate and senior level producers of gold. Since Barrick is the largest bullion producer on the planet, it is in a unique position.
Barrick needs to grow but any additions must be huge in order to be material to such a large company. Mining analysts claim that a target for takeover would need at least 400,000 ounces, and growing, in annual production. Smaller producers like Goldcorp of Canada, could simply purchase a junior miner that produces 250,000 ounces per year.
The company would have to spend more than $10 million Canadian to purchase an intermediate producer like Yamana Gold or Eldorado Gold in order to increase production 15 percent. Entering a large merger with Goldcorp or Newmont Mining would skyrocket production. However, this move is not likely due the declining outlook for Newmont production and the premium Goldcorp receives for North American assets.
Juniors nearing the production phase, like Detour Gold and Osisko Mining, may also not be possibilities. Barrick chooses to focus on projects in earlier stages because it believes it can add more value in those, says Chief Executive Aaron Regent. However, he also stated that his company will not totally rule out purchasing a producing asset.
Due to its limited avenues regarding gold, Barrick faces a production cap of approximately nine million ounces and additional copper deals may be needed for it to continue growing. BHP Billiton, Vale, and Rio Tinto are all diversified top miners. Some analysts worry that Barrick could erode premium and thus, shareholder value if it gets a name as a copper producer. Others say now may be an excellent time to invest.
