American Barrick Resources Corporation Case
a. Explain the value chain for gold mining firms (how can a mine create a competitive advantage relative to its rivals). What are the factors that may explain exceptional performance of ABX relative to the other gold mines?
To create a competitive advantage, a mine has to properly manage its exposure to gold price fluctuations. This is not an easy thing to do since there are so many factors to consider: when, how much, and how to hedge the gold production. Firms in this industry differentiate themselves based on the risk management strategies they implement. Furthermore, mines should also be able to minimize the cost of gold production along with making large sunk costs. Operating in this sector obliges the companies to make huge investments to create the proper infrastructure to dig and process the ore; therefore, they should be financially stable on order to afford investing large amount of money.
ABX implemented a gold hedging program that quickly became an integral part of its corporate strategy. This strategy helped it to hedge efficiently against gold price fluctuation. Besides, it allowed it to occasionally sell its gold at prices above those of the market. The exceptional performance of ABX was also due to its annual acquisitions. Luck was an important aspect as well, since gold was discovered in most of its new properties. Moreover, American Barrick generated a lot of cash, which it reinvested to finance its growth. It was also able to cut its expenses in order to enhance its growing profitability. The management of American Barrick wanted to diversify its activities by listing the company in Toronto, Montreal, and the United States among others. The top managers were very serious about keeping a financial stability and a liquid balance sheet by issuing few debts and hedging against risk. All in all, American Barrick attracted a lot of investors because of its risk management strategies, expected...
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