Barrick Gold eyes deals with rewritten M&A playbook

(This version of the Dec. 22 story corrects paragraph 18 to say Newmont is the world’s biggest gold miner by market cap, not second biggest)

FILE PHOTO - A bulldozer operates inside an open pit at Barrick Gold Corp's Veladero gold mine in Argentina's San Juan province, April 26, 2017. REUTERS/Marcos Brindicci/File Photo

TORONTO (Reuters) - Barrick Gold Corp is actively reviewing acquisitions and in the past 18 months considered at least one transformational deal, as it seeks to boost looming production declines and drive growth, four people familiar with the company’s thinking told Reuters.

It marks a shift for Barrick, which has focused on selling assets to reduce debt in recent years, and signals a possible return to familiar territory as the world’s largest gold producer warms back up to dealmaking.

A series of asset sales, including a 50-percent stake in Argentine gold mine Veladero to Shandong Gold Mining Co Ltd for $960 million earlier this year, has helped put Barrick on a stronger footing and top its debt reduction target this year.

Toronto-based Barrick, whose gold production has declined every year from 2012 to 2016, has historically been acquisitive but has spent recent years focused on debt reduction. It has drawn ire in the past, like many in the sector, from investors who want mining companies to take a more prudent approach to investing and growth.

That is just what Barrick is hoping to do as it charts a course to selectively scour the mining world for assets and companies. Since the 2013 selloff in commodity prices, mining portfolio managers have been speaking out against companies about overspending, investments in risky growth and high levels of debt.

Barrick is conscious of that sentiment and has been developing an M&A strategy aimed at allaying investor fears, the people said, declining to be named as the matter was not public.

“We take a highly disciplined approach to all investments, including acquisitions, and will only pursue opportunities that generate clear value for our shareholders and align with our strategic focus,” Barrick spokesman Andy Lloyd said.

Still, investors are expected to respond to any move to dealmaking with caution, the people said.

With an eye on mitigating risk, Barrick is targeting low-cost production assets in the Americas and wants to stay focused on its core gold area, the people said.

It also wants to use equity to pay for acquisitions, instead of increasing its debt, the people said, adding that Barrick is on the lookout for deals of scale.

With such a framework in place, Barrick weighed the takeover of rival Goldcorp Inc , the world’s No. 3 gold miner by market value, late in 2016, two of the people told Reuters.

The desire to acquire Goldcorp was driven in part by a valuation disconnect between the two companies last year and came at a time when Barrick’s shares were on an ascent and Goldcorp’s stock was on the wane, these two people said.

Barrick shares soared 116 percent in 2016 as it worked aggressively to sell assets and strengthen its balance sheet; Goldcorp gained 14 percent in the same period. Goldcorp lost 28 percent of its value in the second half of last year, when its market capitalization fluctuated from C$13.8 billion ($10.8 billion) to C$23 billion. It currently has a market value of C$13.8 billion.

Barrick’s current market cap is C$21 billion but had surged as much as C$36 billion in the third quarter of last year.

Barrick, which worked with investment banks to explore the possibility, did not approach Goldcorp or make a formal offer, the people said.

Barrick declined to comment on whether it considered a Goldcorp deal.

In March, the two miners agreed to partner to study building gold projects in northern Chile.

Barrick’s choice of Goldcorp is unusual, the people said. The obvious combination speculated in the industry has been a union between Barrick and Newmont Mining Corp, the world’s biggest gold miner by market cap.

Barrick and Newmont have courted each other several times, most recently in 2014 when the two ended merger talks.

The study of Goldcorp shows Barrick’s willingness to go beyond the asset-selling phase with an eye on growth under the new playbook. Goldcorp’s asset profile - as operator of four Canadian mines, and one each in Mexico and Argentina - falls within that template.

($1 = 1.2730 Canadian dollars)

Additional reporting by Susan Taylor in Toronto and Nicole Mordant in Vancouver; Editing by Lisa Shumaker