Two Fish Management is located in Indianapolis, IN, and is managed by Mike Morris and J.R. Sauder. The firm has recently released a lengthy slideshow detailing Barrick Gold Corporation (USA) (NYSE:ABX)‘s investment prospects, and more specifically, “a variety of options for the ABX board of directors and management to consider to unlock shareholder value.”
Down over 45% year-to-date, Barrick Gold has been caught in the same swoon that other gold miners have faced with falling gold bullion prices. According to Two Fish, Barrick Gold Corporation (USA) (NYSE:ABX) has a few avenues at its disposal to turn investors’ collective frown upside down, so to speak. The slideshow is publicly available on the firm’s website here, and we’ve shared it below–all 78 pages of it.
To summarize, Morris, Sauder and their team believe that Barrick is undervalued because of: (1) an “excessively compensated” Board that “lacks engineering and geology expertise,” (2) capital allocation issues, (3) what they call a “conglomerate discount,” which we’ll explain below, and (4) “poor operational execution.”
So what exactly is Barrick Gold Corporation (USA) (NYSE:ABX)’s conglomerate discount?
Essentially, this buzzword describes an assumed scenario that the market is undervaluing shares of Barrick because the company owns a range of poorly performing gold mines in various locations around the globe. In the presentation (page 36), Two Fish mentions that “African Barrick, Australia Pacific and the Global Copper platform […] have little or negative value in Barrick’s current conglomerate model,” and that if these assets were shed, “a break-up of Barrick Gold would likely result in an immediate 50%-100% valuation re-rating and release entrepreneurial forces within each business segment.”
More specifically, the leaner, meaner Barrick Gold Corporation (USA) (NYSE:ABX) would be able to focus on its most profitable assets with an inherently reduced geopolitical risk. In theory, this makes obvious sense, and one particular segment of the slideshow gives a useful overview of current and former Barrick execs’ thoughts on a breakup. CEO Jamie Sokalsky’s quote that’s mentioned really stood out to us (page 56):
“It’s easier to manage a company with fewer assets…Differentiating the portfolio from a geopolitical standpoint can also change the dynamic of how valuable your assets are.”
We’ll quit our yapping, but the breakup case for Barrick Gold Corporation (USA) (NYSE:ABX) makes a load of sense, and is presented in its entirety below. For investors looking for a hidden gem in the gold mining industry, this might be the way to do it. Some other notable investors that hold shares of Barrick at the moment are D.E. Shaw, First Eagle Investment Management and billionaire Ken Griffin’s Citadel Investment Group. Needless to say, we’ll be watching them closely.
In case the plugin isn’t compatible with your system, here’s the full slideshow.