The world’s largest goldminer sees blue skies ahead as demand soars

Aaron Regent, the chief executive of the world’s biggest goldminer Barrick Gold, straightens his tie and smiles – it’s a good time to be in the gold business.

Regent, a 44-year-old with a middle distance runner’s build, is sitting in a meeting room in the recently refurbished Savoy Hotel, and can be forgiven for feeling pleased with himself as gold’s prospects seem to get brighter everyday.

Over the last two years the precious metal has been on a bull run, regularly reaching record highs as investors look for a hedge against inflation to shield against the ongoing economic uncertainty, and provide a safe haven away from the volatility of shares and currencies. Gold’s latest record high was on 9 November, when it reached $1,424.30 (£901.80) an ounce; in January 2000 the price was a mere $280.

Earlier this month World Bank President Robert Zoellick said leading economies should consider adopting a modified gold standard “as an international reference point of market expectations about inflation, deflation and future currency values.”

Gold has played little part in setting how currencies are valued since the Bretton Woods fixed exchange rate regime broke down in 1971, but the last few years has shaken some investors’ faith in the present system of flat money, unpredictable government intervention and rising tensions.

Not surprisingly, Regent, an accountant by training, does not see this coming to an end soon. The smooth-talking Irish-born Canadian says: “We are going through a structural change and more people want to use gold as money. The attitude of central banks to gold has changed. Over the last few decades they had been sellers of gold. Now they are buyers. Central banks in China, Russia and India are buying up a lot of gold.”

Currently 40 per cent of gold is bought as an investment, 50 per cent as jewellery, with the rest used for industrial purposes.

Regent says: “The fundamentals are very strong for gold. And the elements that have made it so are as strong as ever.”

He adds: “Is this a bubble? I don’t think so. Over the last 40 years one ounce of gold has on average been able to buy 15 barrels of oil. That’s still the same today. So the gold price is keeping its relative position in comparison with other commodities.”

All of this is a powerful tonic for the Canadian-based goldminer’s bottom line. In October the firm posted a record third quarter net income of $837m, compared to a one-time loss of $5.35bn the year before when it was in the middle of unwinding its long-term gold hedging programme, which limited the firm’s exposure to gold prices.

The business – which owns 25 mines in such countries as US, Australia and Papua New Guinea – produces 10 per cent of the world’s gold and employs 20,000 people. It has gold reserves of 139.8m ounces. Its cash costs, or costs of production, are $454 per ounce, compared to $518 a year ago. The group is listed in New York and Toronto, and has a market value of $50bn.

But Regent is keen to ramp up production to take advantage of the high gold price. This year the firm plans to mine between 7.65 and 7.85m ounces, compared to 7.4m ounces a year ago. And by 2014 it plans to push this figure up to 9m ounces of gold a year.

To do this Regent reorganised the firm last year into four key regions: North America, South America, Australia Pacific and Africa. He also cut the headcount in the Toronto head office by 25 per cent to 200.

He says: “I wanted to get the area managers closer to the business. They are on the ground and are in the best place to make decisions. I wanted them to run those businesses and take responsibility for their decisions. There was too much overlap between corporate and the regions previously.”

The business, which was set up by chairman and founder Peter Munk in 1983, had primarily grown through acquisitions rather than finding its own deposits. But it is, however, developing two major mines, which will be key to Barrick reaching its 9m ounce target.

It is working on the Pueblo Viejo mine in the Dominican Republic, which is expected to begin production in the fourth quarter of 2011, and the Pascua-Lama mine, on the border between Argentina and Chile, slated to start output in 2013.

Regent says: “These two mines will provide a lot of the increased production we are targeting. Altogether, we are working on six projects and our spend on them this year is $180m. It will be more next year.”

In March Regent spun off around nine per cent of the group’s assets onto the London Stock Exchange. This business, called African Barrick Gold, is made up of four mines in Tanzania that produced 716,000 ounces of gold last year.

Things initially started well. The firm floated towards the lower end of its 550p to 650p price range at 575p, but this still valued the business at around £3bn, which made it big enough to enter the FTSE 100.

However, African Barrick Gold twice had to round down its 2010 forecasts from around 850,000 back to 716,000 ounces, after having in July admitting it was having trouble getting to the higher grade ore in the mine. And then last month it revealed that there was a fuel theft ring at its Buzwagi mine – the largest in the spun-off business, and resulting in the firing of 60 workers. As a result, it was forced to warn that production would suffer until it could train enough workers to replace those that had gone. This theft comes a few years after one of its mines was attacked by locals who stole gold, because they claimed the mine had taken away their livelihoods.

African Barrick Gold currently trades at 523p, below its float price.

Some analysts wonder whether Barrick has actually parked a problem unit by floating African Barrick Gold, a business that has in the past suffered from years of underfunding.

But Regent is quick to point out that Barrick retains a 74 per cent stake in the unit and that he is chairman of the new company.

He says: “We are not distancing ourselves from this business, nor would we. Because we are such big shareholders this gives us the biggest incentive to make sure the business is a success. We have also brought new shareholders into the operation and we want them to make a good return on their investments. It has been a frustrating period. Buzwagi production is below what we had hoped. But we are not in despair, the assets are still there.”

The goldminer adds: “The easy decision on the fuel theft would be to be quiet about it and try to muddle along. The right decision was to deal with it and fire the people involved in the incident.”

He says the Buzwagi mine is “on the way back to full production.”

And he adds that the London float allowed Barrick to get in a high quality management team, led by chief executive Greg Hawkins, who he backs. The unit, he says, is also looking at making acquisitions in the Congo and the rest of Africa.

Investors expect much from Regent, who has a golden boy reputation in the mining industry.

After a short stint at accountants Ernst & Young, the Alberta-raised Regent joined miner Noranda and became chief executive of the multimillion-dollar business before he was 30. When the firm merged with Canadian nickel miner Falconbridge in 2005 he remained the head of the enlarged firm.

And even when Anglo-Swiss mining giant Xstrata bought out Falconbridge for $18bn in 2006, Regent managed to get Xstrata boss Mick Davis, who is known as a tough dealmaker, to repeatedly raise his bid despite the fact that the bigger firm already owned 25 per cent of Falconbridge. He spent the next three years from 2006 at Canadian firm Brookfield Asset Management as joint head of its new infrastructure fund. Then Peter Munk at Barrick tempted him back to run a public company last January.

Regent might have a problem unit to sort out, but overall the comfortable feather bed of record gold prices should give him the time and the space to address most of the issues he faces. For investors, meanwhile, the mantra is simple – in gold we trust.

CV | AARON REGENT

Age: 44

Work: Aaron Regent became Barrick Gold’s CEO in January 2009. Between 2005 and 2009 he was co-CEO of Brookfield Infrastructure Group. Between 2002 and 2005 he was chief executive officer of miner Falconbridge. Prior to that, Regent worked for rival Noranda, where he carried out a variety of roles before becoming president. He started off at Ernst & Young.

Education: University of Western Ontario.

Family: Married, three daughters. Lives in Toronto.

Hobbies: A board member of the National Ballet of Canada and The Trails Initiative, an outdoor activities charity for children.