By ANNA PRIOR
For a gold mining executive's office, Aaron Regent's is surprisingly lacking in the shiny metal. There are no gold bars, no nuggets, no coins, not even an imposing safe. Rather, a printed-out photograph of a gold nugget is tacked to the bulletin board behind his uncluttered desk with a small sign in the corner proclaiming In Gold We Trust. "We had some real gold, but it went missing," quips the 45-year-old chief executive officer of Barrick Gold.
Regent's office may be almost gold-free, but that's hardly the case with Barrick's mines. The Toronto-based firm sits on a huge reserve of the stuff roughly 140 million ounces (enough to fill 10 Boeing 747-400s). In March the firm got the go-ahead from the U.S. government to resume operations at one of the world's largest gold mines, located in central Nevada, where Barrick expects to extract as much as 1.5 million ounces (roughly 45 tons) this year at least a 14 percent jump from last year. At today's prices, the company could get $1.9 billion worth of gold per year from that mine alone. And yet the surprise is, for all that glitter in the ground, Barrick seems nearly as dazzled lately by another, more prosaic metal. In April the firm agreed to pay $7.6 billion to acquire Equinox, which has a huge copper mine in Zambia. The move didn't go over well with some Wall Street analysts. "They have the strategic position to take on tough gold projects that others don't, but for some reason they aren't doing that," says Rick de los Reyes, a metals and mining analyst at T. Rowe Price. Says Regent: "Copper and gold are compatible."
That purchase notwithstanding, there's no question which metal holds more weight in Barrick's plans; gold will make up 80 percent of the company's portfolio after the deal, says Regent, who took the helm in 2008 from Barrick's founder, Peter Munk, and who has guided the company to record profits. In the days before Regent, the firm would generally lock in a price for gold that it had yet to mine in order to protect against a possible price dip a strategy that infuriated critics who argued that it kept Barrick from taking full advantage of gold's soaring price. Regent ended the gold hedges early in his tenure. (While analysts applauded this move, many have voiced concerns over the company's recent push into copper.)
SmartMoney met with Regent in his Toronto office to hear what nuggets of wisdom the world's reigning gold king can share.
Is gold in a bubble?
I don't think it's in a bubble. Short-term prices might take a hit for a variety of reasons. I think, long-term, what's underpinning the gold price, those drivers, are in place.
What are those drivers?
A lot of it has to do with what is happening in a macroeconomic situation, like the government's response to the global economy and monetary policy. A lot of the fiscal policies are positive for gold because of potential inflationary results. But there are also micro factors at play, with more central banks that have historically been sellers of gold becoming big purchasers in the last year and a half.
Stock investors can now get gold through exchange-traded funds. Why buy stock of a gold miner?
I do think that there are real advantages to owning gold equities. If the gold price goes up, we have a lot of leverage to the gold price, so you get an amplified impact. In addition, you get a dividend.
Since you've come on board, Barrick has stopped hedging gold prices. Will it ever come back?
No, we've made it clear with respect to gold that we won't be hedging. We do hedge other commodity exposures: currencies, oil, copper, things like that, but not with respect to gold.
It's estimated that only 15 percent of the world's gold has been mined. Where's the rest?
There may be a lot of gold hidden away deep beneath the surface of the earth, but the real challenge is finding gold that can be safely and profitably mined.
But new mines are opening. Are you worried about oversupply?
It can take anywhere from eight to 10 years to bring a new mine into production. As an industry, we would like to pull out more, we're just constrained by the nature of the business.
Why spend nearly $8 billion on a copper miner?
In the mining space, we keep track of everything with a focus on gold, but we're curious to know what our peers are doing. We like that Equinox is a current copper producer and that it has big mines in Zambia and Saudi Arabia.
What's the relationship between the prices of gold and copper?
During the financial crisis, copper underperformed gold, and in great economic times, copper tends to outperform gold. Combined, there's some balancing between the two that provides stability to revenues.
Is gold in your portfolio?
Yes, it's gold mining. It's all Barrick, by the way.
What about physical gold?
Look, I do have some physical gold, but it's not big. Might I add some more? Yes. I do have gold cuff links.