Barrick volte-face on CEO raises questions

Thu Jun 7, 2012 12:00pm BST

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(Repeats story first released late on June 6.)

* Company lauded CEO Aaron Regent's performance just weeks ago

* Barrick's sluggish stocks cited as reason for CEO ouster

* Analysts note other gold miners have faced similar stagnation

By Euan Rocha and Julie Gordon

TORONTO, June 6 (Reuters) - Barrick's surprising ouster of Chief Executive Aaron Regent on Wednesday raised more questions than it answered for anxious investors, who are left wondering why the world's top gold miner would axe its CEO just a month after singing his praises.

"I must congratulate you, Aaron, because indeed this company is firing on all cylinders," Barrick founder Peter Munk told shareholders at the company's May 2 annual meeting. "We do share your sense of accomplishment and achievement."

Yet Barrick abruptly replaced Regent with Chief Financial Officer Jamie Sokalsky. It said it is disappointed that its stock has virtually stagnated since Regent took the helm three years ago. [ID:nL1E8H62CK]

"Gold stocks haven’t done anything for years. It has nothing to do with Aaron Regent, it has to do with the fact that people don’t want to own gold stocks," said Barry Schwartz a portfolio manager with Baskin Financial Services in Toronto.

"I’m sure there's more to the story than what’s being told to us. Obviously there was disagreement between the CEO and the board, and he's gone," said Schwartz. "It's a tough business to be a CEO of a gold-mining company over the last few years, but that's life in the big city."

Barrick declined to comment further on the reasons for the management shake-up.

CEO PERFORMANCE

With a ringing endorsement just a few weeks ago, most investors are very puzzled by Barrick's move, even more so because Regent and other executives received annual performance incentives above target, according to a recent information circular to investors.

Regent, 46, received incentive payments of $2.3 million in 2011, 140 percent over his base salary of $1.66 million. His total compensation package, including option-based awards, pension and other benefits, totaled $9.3 million.

"The official reason for the departure doesn't carry water in my opinion," said George Topping, a mining analyst at Stifel Nicolaus. "If you look at the performance charts, Barrick has done pretty much middle-of-the-group really. It doesn't stand out as being any worse than the others."

"You have got to ask yourself - why now?" said Topping. "Maybe they need somebody to take the blame for something that is still to come down the line. Perhaps Equinox is worse than we think?"

Barrick's C$7.3 billion acquisition of copper miner Equinox has so far failed to live up to expectations. Barrick has been hurt by high operating costs at its Equinox flagship copper mine in Zambia and criticism that the takeover diversified it away from gold.

SHARES DRAG

Canaccord Genuity analyst Steven Butler notes that Barrick's share price return since Regent's appointment in January 2009 was 30 percent, compared with returns of 65 percent and 44 percent from smaller rivals Goldcorp Inc (G.TO) and Newmont Mining Corp (NEM.N), respectively.

Munk hinted discontent with this at the AGM, expressing disappointment in Barrick's share performance and noting that Barrick was once proud of the fact it was the best performing stock in town.

"Let's be honest. This is a public company and the ultimate test for performance, the ultimate test of your job (Aaron) and my job and the board's job is to produce adequate returns to shareholders," said Munk.

But Munk tempered the criticism with praise for the company.

"I'd rather own a company, which performs spectacularly on all cylinders, that has a low share price, than a company that performs badly, but has a high share price," said Munk. "So I leave to you the choice, whether you'd like to buy Barrick shares today or not."

Schwartz agreed that Regent had Barrick on the right path.

"They were focusing their efforts. They were working on a number of strong projects and keeping costs well under control. Profits were growing. Everything you could ask for was going right," said Schwartz. "The fact the stock price didn't go higher, that's the market's fault. That's not Aaron Regent's fault."

RIGHT CHOICE?

Some questioned if Sokalsky, whose main background is in finance, would be the best replacement.

"Jamie is the bean counter," said John Ing, President of Maison Placements Canada, an institutional investment dealer in Toronto, noting that outspoken chairman Peter Munk has a higher profile than most Barrick executives.

"He's a good guy," he added. "But Jamie is a finance guy and I believe that what is needed is somebody with a mining background."

Barrick said it has full confidence in Sokalsky's experience and commitment to take the company forward.

Some analysts like Anita Soni at Credit Suisse agree, noting to clients that Sokalsky is capable, experienced and well liked.

"We think he will bring a financially prudent approach to Barrick’s capital allocation program," Soni said.

(Additional reporting by Jon Cook; Editing by Janet Guttsman and Gunna Dickson)

((euan.rocha@thomsonreuters.com)(+1 416 941 8185)(Reuters Messaging: euan.rocha.reuters.com@reuters.net)) Keywords: BARRICK CEO/QUESTIONS

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