Barrick Gold Outlook Takes a Hit Over Pacific Mine Dispute

(Bloomberg) -- A Pacific island nation that's been demanding a bigger share of its mineral wealth from resources companies has forced Barrick Gold Corp. to do what a global pandemic could not -- cut its 2020 production guidance.

Less than a month after saying its output was secure, the world's second-largest gold miner said it expects to produce 4.6 million to 5 million ounces of gold this year, lowering its range by 200,000 ounces, after running into conflict with the government of Papua New Guinea.

In April, the Toronto-based miner said it would challenge a decision by the PNG government to deny it the right to keep operating the Porgera gold mine, which accounted for about 5% of Barrick's gold production last year.

“We put it on care and maintenance,” Chief Executive Officer Mark Bristow said by phone Wednesday following the release of the company's first-quarter earnings statement. “We were forced to do that because we didn't have the right to mine.”

A judge in PNG has insisted the mine remain shuttered while the two sides commence “substantive discussions,” Bristow said. The miner has been ordered to return to court on May 8 to report on progress. If an agreement hasn't been reached, the court will appoint a mediator, he said. Barrick co-owns the Porgera operation with Chinese partner Zijin Mining Group Co.

PNG's Prime Minister James Marape swept to power last year with a promise to secure a bigger share of revenue from the country's resources. The stand-off with Barrick is widely seen as a litmus test for a strategy that could threaten other multibillion-dollar projects by energy majors Exxon Mobil Corp. and Total SA. Last month, Bristow said the Barrick decision was “tantamount to nationalization without due process.”

Barrick fell 4.2% to $27.01 at 1:21 p.m. in New York, trimming its gain this year to 45%.

Over the next decade, Barrick still expects to produce about 5 million ounces of gold a year, compared with the 6 million to 7 million ounce forecast of Newmont Corp., its U.S.-based rival. Newmont also released its first-quarter earnings report this week, highlighting a $1 billion share buyback program, a 79% dividend hike earlier this year, and output that makes it the world's largest gold company.

Asked if Barrick intends to further hike its dividend, Bristow said it's impossible to tell where the gold price will trade in coming months, given the pandemic, adding that he doesn't make “knee-jerk” decisions. “The last thing we ever want to be compared with is Newmont's dividend strategy. They're a corporate business that allocates capital. We're a gold mining business that allocates value.”

‘Dynamic' Environment

Speaking to analysts on a conference call later Wednesday, Bristow said he sees a “dynamic” environment for M&A. The miner is expanding its hunt for opportunities to include Saudi Arabia, Japan and the Pacific Rim, he said. Asked if he is still interested in Freeport-McMoRan Inc.'s Grasberg mine in Indonesia, he didn't answer directly but reiterated that it's important to stay “relevant.”

Over the past two years, much of the growth in the gold industry has occurred through mergers. Barrick started the ball rolling with its merger with Randgold Resources Ltd., and Newmont followed a few months later with a deal for Goldcorp Inc. Barrick and Newmont then combined their Nevada operations in a joint venture deal last year. On Wednesday, Bristow said he has “no doubt” more sector consolidation is coming.

So far, the coronavirus pandemic has had little impact on Barrick's output, Bristow said, as the company was able to stockpile inventories of consumables and shifted orders for some key goods from country to country as the virus spread. “Our supply chains are fully open,” Bristow said.