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Enterprise Risk Management at Barrick

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Case Details:

Case Code : ERMT-015
Case Length : 16 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Barrick
Industry : Gold
Countries : USA

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Barrick was North America's #2 gold producer behind Newmont Mining, with nearly 87 million ounces of gold in proven and probable reserves. The company's operations were located mainly in USA, Canada, Australia, Peru, Tanzania, Chile and Argentina.

About 60% of the company's production came from its 7,000-acre Goldstrike Property, located in Nevada's Carlin Trend gold-producing region. Its other important properties included the Bulyanhulu Mine in Tanzania, the Alto Chicama Mine in Peru, and the Holt-McDermott Mine in Canada. The company expected future revenues to come from its development projects in Argentina, Australia, Chile, and Peru.

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In late 2001, Barrick acquired 125-year-old Homestake Mining (US) in a $2.3 billion stock deal. In 2002, Barrick produced 5.7 million ounces of gold and recorded sales of $1967 million and net income of $193 million.

Barrick had major plans for capacity expansion. Barrick's $95 million development budget, the industry's largest, was intended to increase production by over 20% by 2006.

Barrick was also exploring gold deposits near its existing mines, a strategy it considered as having the lowest risk and highest potential for returns. Barrick was one of the more successful hedgers in the industry. The company estimated its hedging strategy had added more than $2 billion to profits since the late 1980s. Barrick believed its shares represented a unique asset class with a different risk profile, fulfilling a special role in the financial markets. Investors used gold-related investments to diversify their portfolio risks. The price of gold typically rose in times of uncertainty when prices of other financial assets fell.

Background Note

Barrick Gold started in 1983 when Peter Munk merged three small mining and oil and gas companies as Barrick Resources Corp. and took the company public. The company's early mining activities included stakes in Camflo Mines Ltd., the Renabie Mine in Ontario, and the Valdez Creek Mine in Alaska. Its oil and gas properties and interest in two coalmines were sold in the mid-1980s.

Barrick Resources grew rapidly by buying up North American gold mines. It was renamed American Barrick Resources in 1985 after it acquired the Goldstrike Property. In 1988, American Barrick had seven producing mines in Alaska, Nevada, Utah, Ontario and Quebec. That year the company opened the Holt-McDermott Mine, the first property it developed all the way from exploration to production. Also in 1988, American Barrick completed a $23 million ore-processing complex at Goldstrike.

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