As Barrick Gold Corporation (NYSE/ABX) tries to execute a turnaround, falling gold prices are throwing a wrench into the company’s plans. The precious metal has been down nearly 16.2% over the last 12 months, pushing the miner’s stock price to a 25-year low.
Shares of Barrick dropped over 10% on Monday July 20th, cutting the firm’s value by almost $1.0 billion. Lower gold prices hit Barrick harder than its competitors because of the firm’s weak performance in recent years. First-quarter earnings in 2015 fell short of analysts’ expectations and shareholders expressed outrage at the level of executive compensation.
Revenue had fallen 15.2% during 2014, yet CEO John Thornton thought it appropriate to take a salary of $12.9 million. The move would have reflected a 35.8% increase in compensation despite his company’s poor performance. Shareholders flatly rejected the package, with over 75% voting to reduce Thornton’s pay. (Source: Toronto Star, April 29, 2015.)
Since ex-CEO and Founder Peter Munk stepped down, Barrick has been in the midst of a turnaround. Thornton was brought in from Goldman Sachs to trim expenses and refocus business.
Many analysts have expressed concern over the company’s debt burden. Several years of stagnant gold prices combined with ill-fated acquisitions have put Barrick Gold $13.0 billion in debt. To pay off the loans, Thornton is selling off non-core assets and eliminating some layers of middle-management. He plans to pay off $3.0 billion in 2015.
Thornton articulated a significantly different vision than his predecessor. Rather than a mining conglomerate with operations scattered across the globe, Thornton imagined a smaller, more efficient miner. (Source: Canadian Business, July 3, 2015.)