Barrick Gold CEO says it provides a de facto ‘self-funded insurance policy’

Barrick Gold CEO says it provides a de facto ‘self-funded insurance policy’

  • Gold prices traded above the $1,700 an ounce mark for the first time in seven years.
  • Barrick Gold CEO said his company can double as a provider of a "self-funded insurance policy."
  • If gold prices falls, Barrick's 10-year plan is built on assumptions of $1,200 an ounce.

Barrick Gold Corp (NYSE: GOLD) doesn’t want to be known as a gold mining company, rather a provider of a hedging tool for investors to protect their other assets against a global financial crisis, CEO Mark Bristow said Wednesday during a CNBC interview.

‘Pressure on paper money’

The global COVID-19 pandemic forced central banks across the world to take drastic measures to support their economies. In the U.S., the Federal Reserve has taken its quantitative easing program “to another level” which adds “pressure on paper money,” the CEO said on CNBC’s “Squawk Box.” The end result is a rise in gold prices — as has been the case across the world.

The CEO’s comments come at a time when the price of gold inched above $1,700 per ounce for the first time in seven years. This makes the commodity a de facto provider of a “self-funded insurance policy against a global financial crisis,” he said.

Put in perspective, gold’s all-time-high was seen in 2011 at $1,900 but the mining industry “added a whole lot of supply” to take advantage of the commodity’s surging value, he said. This may have had the unintended consequence of destroying a lot of that value and growth.

But since then, Barrick has learned lessons on how to remain disciplined, he said. In fact, the industry is now at a point where there are no gold reserves among Barrick’s industry peers. Companies consistently take advantage of lower-quality resources as prices rise so “we’re not prepared as an industry for extra demand.”

“There’s a technical aberration as well, because new gold supply is predicted to decline. So gold supply, and technical support for gold prices, is also adding to the underpinning of the gold price going forward.” 

Even if the pandemic results in gold prices falling, the company’s 10-year plan is built on internal expectations for gold to trade at $1,200 an ounce.

Expertise in managing pandemics

Barrick Gold has lots of exposure to Africa which implies it has experience in dealing with pandemics, especially viral pandemics. As such, the company already has a playbook to count on that can be applied to the current COVID-19 pandemic.  

The company distributed 8,000 coronavirus test kits and has been active in screening, isolating, and identifying potentially sick workers. This policy has been active since February across 14 different mines.

By Jayson Derrick
Jayson Derrick has been writing professionally about stocks since 2011. He is particularly interested in alternative investments, hedge funds, and activist investing. He is a big fan of NHL hockey and lives in Montreal, Canada with his wife and four year old daughter.

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