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Barrack Gold Corporation

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Barrack Gold Corporation
Introduction
The following essay focuses on the mining conglomerate Barrick Gold Corporation. Barrick owns gold and copper mines across Australia, Africa, and the Americas and these geographical locations provide the focus of the essay’s Macroenviromental analysis. The gold is sold to various gold bullion dealers at market prices whereas copper is sold to copper product manufacturers and copper traders in Europe, North America, South America and Asia (BarrickResponsibilty, 2013).
Barrick’s Macroenviroment
According to Kotler et al. (2011) a company and all of the other actors operate in a larger macroenviroment of forces that shape opportunities and pose threats to a company such as Barrick. Jobber and Ellis-Chadwick (2013) further imply that it is these actors and forces that affect the mining company’s capability to operate effectively in providing products and services to its customers. Its external environment is characterized by elements that do not have an immediate impact on its performance albeit their impact being felt over the long term. There are those that can influence the company marketing activities without management being able to control them hence the need to continuously monitor them or risk going out of business (Wilson, 2006). The framework that best discusses these elements is the PESTLE Analysis as it provides the strategic planning and environmental analysis that can be useful for Barrick to improve performance and ensure its long term existence as a going concern (Sanderson and Luffman, 2007). Note that though the acronym PESTLE can infer to the order the analysis is conducted, it is important for Barrick to identify which variables are most important for an opportunity and threat analysis.

Political, Legal and Economical
Though Political, Legal and Economic factors are autonomous discussed in literature, the case of Barrick shows interrelation of these factors in terms of how each one influences the other. Wilson and England (2015) reported on the Barrick’s suspension of Zambian copper output at its Lumwana mine after the Zambian government revised the mining tax regime. They further reported that the price of Copper had fallen by 14% amid indications of oversupply in the market coupled with concerns about Chinese demand. Blas (2012) also reported on the fall of gold prices due to the fall in demand from India. Beinhocker, Davis and Mendonca (2009) identified this as shift in the global consumption pattern. In addition, the political uncertainty in the country following the death of the president saw the country go to the polls with politicians making bold statements to collect more revenue from the mines (England, 2014) which often implies a potential threat of nationalisation as in the cases provided in GrantThorton (2011). Conversely, Barrick’s Chairman also acknowledge that there was a paradigm shift in investor practices as they were no longer interested in growth alone but free cash flow, increased dividends, and other shareholder-friendly motives became the new priorities (Barrick-Annual-Report, 2014). Jobber and Ellis-Chadwick (2013) provide examples of the consequences of having market dominance and acquiring excessive market power through acquisition as these attract governments and standards bodies attention.
On the legal side, in a decision that did not sit well with investors, Barrick shareholders filed class action suit over the closure of its incomplete Pascua-Lama mine in South America (Hasselback, 2014). Further legal woes included the accident settlements at its Acaica mine in Tanzania (Reuters, 2015) and the impending appeal case in Nevada over mining waste problems at the Philippines mine (Yahoo-Finance, 2015).
Although the examples show minimal control of the environmental variables, lobbying is a method that can be used to influence political and economic policy. OpenSecrets.org (2015) shows the premium that Barrick places on lobbying issues relating to land usage, taxes, natural resource, and environmental. However, market scanning of attractive investment emerging economies indicate a not to be ignored growing global trend by governments seeking economic diversification strategies to overcome resource dependence and safeguard long-term sustainable economic growth (Euromonitor-Int, 2014).
Technology and Ecological
Evolving technology impacts on the productivity and business efficiency in the mining industry (Baines, Fill, and Page, 2011). However, there is a difficulty in determining whether or not to invest in new technologies because the benefits are unclear from the onset (Baines, Fill, and Page, 2011). Examples are the current challenge of deep mining whilst gold deposits deplete with ever increasing energy costs and transportation challenges to newly discovered remote mining locations (Barrickbeyondborders, 2014).Conversely, ignoring these technological trends could give rival mining companies the opportunity to transform the mining industry (Ofek and Wathieu, 2010). In addition, they propose a four step methodology that can allow companies such as Barrick identify the trends they ought to be looking at when presented with a report such as the Disruptive Technology report from Mckinsey (2013).
Issues relating to pollution are ecological issues therefore sustainable eco-friendly communities are what most communities demand for. GrantThorton, (2011) highlights the different “Green” legislation that has been passed globally in countries with high mining activity and the influence that lobby groups have had on governments to pass these laws. This presents an opportunity for Barrick to infuse (Ofek and Wathieu, 2010) some aspects of this trend by building new mines that are eco-friendly.
Orsato (2006) as cited in (Baines, Fill, and Page, 2011) suggests strategies that Barrick can adopt in order to incorporate the changing trend in sustainability into its organization process through eco-efficiency and beyond compliance leadership. Technology is an enabler for resource productivity and better utilization of by products from the mining process. In addition, being seen to be compliant by stake holders can demonstrate Barrick’s ecological credentials.
Socio-Cultural
According to Barrick-CSR (2015a), Barrick established a Corporate Social Responsibility (CSR) Advisory Board in 2012 and it acts as an external sounding board on a range of corporate responsibility issues. This was in response to changes in the marketing environment around issues concerning climate change, water, poverty and inclusive growth, new forms of corporate valuation and reporting models, and transparency and governance Barrick-CSR (2015b). However, according to the lobby group ProtestBarrick (2015) which is opposed to the mining company’s activities, Canada has not taken the lead on mediating or taking responsibility for the behaviour of the mining company abroad leading to inconsistencies of how it applies CSR in different operating regions and inevitably leading to the backlash from the United Nations over the incidents cited in MiningWatch (2013).
Stage 1 and 2 PESTLE Analysis
Applying the methodology provided by Ho (2014), Table 1 shows a Stage 1 PESTLE analysis of Barrick’s external environment. However, Table 1 does not recognize the interrelatedness of some of the PESTLE factors and possibilities that some of them can belong to more than one category. In order to address this deficiency, HO (2014) proposes a Stage 2 PESTLE analysis diagram that shows the interrelatedness of the factors. For example, Barrick’s economic factor of inconsistent mining taxes (Category 2, factor E1) is as a result of (Category 1, factor P2). Similarly the fall in global gold and copper prices (E2) inevitably lead to shareholders suing over a project failure (L1).

The 5 categories of PESTLE factors | Examples of PESTLE factors | Category 1: Political factors (P) | * P1: “..there is political instability in emerging economies” * P2: “Politicians using Mining taxes as campaign tool” * P3: “..nationalization of mines..” | Category 2: Economic factors (E) | * E1: “..inconsistency in mining taxes application ” * E2: “.global fall in gold and copper prices.” * E3: “..change in investor practices” | Category 3: Socio-cultural factors (S) | * S1: “.communities demanding for green mining.” * S2: “..demand for CSR for issues around climate change, water, poverty.” * S3: “..inconsistency of CSR application globally..” | Category 4: Technological factors (T) | * T1: “.increasing energy costs with depleting mineral deposits.” * T2: “.transportation limitations in not so easy to access mining areas.” | Category 5: Legal factors (L) | * L1: “..shareholders suing over project failure” * L2: “..verdict against Barrick in accident case in Tanzania.” * L3: “.pending appeal against verdict in Philippines mine..” | Category 6: Ecological (E) | * E1: “..concerns over pollution” |

Table 1: Specific examples of the PESTLE factors attributed to Barrick Gold Corporation
Environmental Risk and Opportunities
Using Brooke and Buckley (1982) benchmarking technique (as cited in Table 1 of Sanderson and Luffman (1988)), Table 2 below provides an extract list of potential and risk variables in foreign economies that Barrick is likely to experience and some of the opportunities that arise as a result. The Risk / Potential listing allows the company to weigh these key variables to arrive at a benchmark score that allows for a trade-off analysis of the probability of occurrence risk against the probable impact on the corporation. Variable | Risk / Potential | Opportunities For Barrick | The National Economy | * Gross Domestic Product per head * National Budget priorities * National credit position * Balance of payments * Exchange rates | * Contributing to the GDP per capita through job creation * Contributing to the stability of exchange rate through exports | The Social Facts | * Total population * Availability of Managers * Problems over foreign managers or workers | * Skills transfer to locals | The Political Conditions | * Stability of central government * Stability of civil service * Loans from the International monetary fund | * Leverage discussions with government to influence policy | The Economic Policies | * Nationalisation * Polices related to foreign ownership * Tariffs * Corporate tax * Corruption | * Joint ventures with local entrepreneurs * Spearhead corporate governance |
Table 2: Summary of Key International Variables that apply to Barrick and the opportunities they present
Challenges of Macroenviromental Analysis
In the letter from the Chairman to Shareholders contained in (Barrick-Annual-Report, 2014), Peter Munk expressed disappointment at the setbacks that were out of company’s control on the performance of the company. Some of the setbacks included poor timing of mine acquisitions, global fall in gold prices, cost overruns and associated issues at the massive Pascua-Lama project on the Argentinean-Chilean border and being forced to renegotiate the legally binding lease agreement for a new Pueblo Viejo mine in the Dominican Republic on much less favourable financial terms. These are examples of major frustrations in the macroenviromental analysis and highlight some of the challenges large market leaders may have in understanding the macroenviroment due to ignorance, over confidence and attitudes towards risk. Ginter and Duncan (1990) summarise these to include inability to organize for effective environmental scanning, inability to collect pertinent and timely information and general inability to respond quick enough to take advantage of trends identified. This makes the difference between maintaining shareholder value and losing it. Furthermore, due to Barrick’s size, its requirement for huge capital expense, high competition, turbulent markets and global reach, the need for macroenviromental analysis increases (Yip (1985) cited in Ginter and Duncan (1990)).
Camillus and Datta (1991) offer a solution that Barrick’s management can use in order to prioritise some of these environmental priorities. The method considers the information clarity, urgency of the decision, the impact to the firm and the probability of the occurrence. Barrick can then determine which trends are worth reacting to and which are not.
Conclusion
Armstrong and Kotler (2013, p.116) observed that there were three kinds of companies: those who make things happen, those who watch things happen, and those who wonder what's happened. Barrick must take a proactive stance towards the marketing environment by not assuming that their strategic options are bounded by their current environment. Taking aggressive steps such as the use of lobbyists to influence legislation in the mining industry as well as promote a positive public image of the company, they can overcome seemingly uncontrollable environmental factors (Armstrong and Kotler, 2013). In addition, Baker and Hart (2008) through their re-enactment of Levitt (1960) “Marketing Myopia” provides two cycle of destruction factors that Barrick needs to be aware of in its pursuit of glory: economies of scale through mass production and preoccupation with R&D whilst neglecting technology trends. This entails slower long-term growth for mature products such as gold and copper.
References
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Baines, P., Fill, C. and Page, K. (2011) Marketing, 2nd Edition. Oxford University Press: Oxford - Chapter 2
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