In a recently released Massif Capital‘s Q1 2019 Investor Letter, this hedge fund shared its views on a few companies from its portfolio, including Barrick Gold Corporation (NYSE:GOLD). If you are interested you can download a complete copy of the letter – here, while in this article we bring you only the part of the letter that discusses Barrick Gold.
Our portfolio was relatively quiet on the news front over the first quarter of the year, the exceptions being Barrick Gold and Graftech.Our investment in Barrick Gold was made late last year before the announced merger with Randgold. Overall, we are pleased with the merger and are very positive on the reshuffle of management and the corporate structure. We believe both will help the business unlock significant value over time.There are concerns about the growing political risk embedded in the new Barrick Gold portfolio because of the heavy African exposure added to the company through the merger. We do not foresee this being a problem. As we outlined in a recent white paper focused on political risk, we believe the key to success in difficult locations is a management team with a proven ability to manage political risk as an ongoing operational concern. The Randgold team has a successful track record and proven capability of doing just that.We will admit to having been concerned when management launched a hostile takeover effort of Newmont, the world’s largest gold miner. Barrick, having just absorbed a near-peer, was not, in our estimation, positioned to integrate another larger peer intelligently. The hostile bid was little more than a tactic though and brought the Newmont management team to the negotiating table to strike a deal to rationalize the operation of assets both companies have in Nevada, all of which are within driving distance of each other. The new Nevada joint venture (JV) offers significant opportunities to benefit from the reduction of duplicated ore processing activities resulting in long term cost savings and real synergies. As with all JVs, there is the potential for leadership issues and a failure to live up to the potential value outlined on paper. As such, we await news of progress before penciling the proposed cost savings into our core valuation.7