US hedge fund, Two Fish Management, is making a renewed call for the breakup of Barrick Gold (ABX:TSX).  The hedge fund, led by Mike Morris said “the market is essentially assigning a massive conglomerate discount to the company.”  Morris cannot see any compelling reason to own a worldwide conglomerate of gold mines.  Two Fish wrote Barrick in April demanding they breakup the company and since then Barrick has agreed to sell of its Barrick Energy arm and three high-cost Australian gold mines.

The 10-year chart says it all…

Barrick Gold (ABX:TSX)

Barrick Gold (ABX:TSX)

Two Fish holds a relatively small position in Barrick (mostly through options) and so it is unlikely that their call for action was what led to Barrick making the divestitures it did.  However, the timing of the call was bang on.  The fund also makes an interesting point; is Barrick so large that any synergies are gained are offset by increased overheads?  At the face of it, it would appear that having a large mining conglomerate would save money by spreading out fixed costs over multiple operations.  Although this is true in some cases (where assets are geographically near each other) it is not true for a global conglomerate like Barrick because whatever synergies are created in sharing middle and upper management salaries and fixed costs are offset by having multiple offices with multiple lawyers, environmental personnel, trucks, equipment, etc.  Breaking up Barrick into geographical Barrick spinouts would make more sense; ie: South American Barrick, North American Barrick and Australian Barrick (African Barrick which exists already).

Morris points out that this massive mining conglomerate and the largest gold miner in the world doesn’t have a single geologist or engineer on its board.  Seems a little odd…

Peter Munk - Founder and Chairman of Barrick Gold

Peter Munk – Founder and Chairman of Barrick Gold

Barrick has had massive issues at its Pascua-Lama project where costs seemed to continually rise along with political tensions leading to the company delaying the development of one of its most significant pipeline asset.  Barrick plans to cut $1.5-$1.8 billion over 2013 and 2014 by cutting capital spending.

Article here: Hedge Fund Calls for Break Up of Barrick Gold