In an exclusive interview with The Globe and Mail, outgoing Barrick Gold Corp. chairman Peter Munk:
- Blames himself for getting caught up in the metals mania.
- Outlines four factors that damaged Barrick in recent years.
- Vows Barrick will emerge as one of the world’s diversified mining titans.
It was spring 2011, and a frenzy had gripped the mining industry.
As China consumed ever-growing amounts of copper, gold, nickel and other metals, prices were breaking records and mining companies were launching multibillion-dollar deals. The mantra in the resource sector was “growth, growth, growth.”
Barrick Gold Corp. was readying its arsenal. With gold prices flying high, the company earned a record $3.3-billion (U.S.) in 2010. The gold producer had the strongest credit rating among its peers, and everywhere Barrick chairman Peter Munk turned, brokers were offering to lend the company billions of dollars at low financing rates.
At the time, the large Lumwana copper property in Zambia owned by Toronto-listed Equinox Minerals Ltd. was a coveted prize for industry’s big base metals players. As a gold company, Barrick was not seen as a likely bidder.
But when China’s Minmetals Resources Ltd. offered $6.3-billion (Canadian) to acquire Equinox, the situation proved too tempting for Mr. Munk.
Barrick launched a blowout bid of $7.3-billion in cash for Equinox in April, 2011, a staggering amount that clinched the deal.
It didn’t go well.
Early this year Barrick announced a $3.8-billion (U.S.) writedown largely tied to Equinox, an acknowledgment that it far overpaid for the company.
Now Barrick is a wounded company, its former strength sapped by poor acquisitions and mine developments gone horribly wrong. China’s growth has cooled and the metal mania has long faded. Barrick has suffered big losses, its credit rating has been slashed and its once-pristine balance sheet is heavy with debt. Its stock price, at $16.72 (Canadian) Wednesday, has retreated to levels seen 20 years ago.
Mr. Munk looks back at the Equinox era, when companies were madly acquiring rivals with the belief that metal prices would endlessly soar, and puts the blame squarely on himself.
“We bought Equinox to increase our copper. And that was my first major mistake – entirely attributed to hubris,” Mr. Munk said in an exclusive interview with The Globe and Mail.
“The very fact that I accepted that stupidity … that I kept on believing, because everyone kept on saying gold goes up. I should have known,” he said.
Barrick announced Wednesday that Mr. Munk will hand over the chairmanship of the company he founded in 1983 to former Goldman Sachs president John Thornton at the next annual meeting of shareholders.
The company also shook up its board, which has been criticized for not exercising enough independence from Mr. Munk. Long-standing board members Brian Mulroney, a former prime minister of Canada, and Howard Beck, a lawyer who has served as a director since Barrick’s inception, will also stand down at the annual meeting. The board nominated four new members, including Bay Street veteran Ned Goodman.
The timing of his exit is tough for Mr. Munk, who built Barrick up from nothing into the world’s largest gold producer, a stunning achievement in a country that features few global industry leaders.
“We’ve had a rough year, rough 18 months I say. But equally, as I keep on telling my children, and any business school I am asked to speak to, you don’t go through being a hero year after year without encountering the odd rough days,” Mr. Munk said from his office on the 37th floor of a Bay Street skyscraper.
But whatever problems Barrick is sorting through now, Mr. Munk remains steadfast that Barrick will eventually grow to be on par with the very biggest of the world’s diversified mining giants such as Rio Tinto (often called RTZ) and BHP Billiton.
“I really believe that Barrick’s destiny is the North American RTZ and BHP, and that’s what it will be without a shadow of a doubt.”
A gold giant is born
Peter Munk had been a contrarian investor all his life. His first business was an idea he hatched with friend David Gilmour to create newfangled stereo systems from Canada, which became a must-have for the likes of Hugh Hefner and Frank Sinatra.
When that fizzled out, they decided to start a hotel chain in Australia and Asia because Hilton and all the other major hotel chains were already established in North America.
Then when the price of gold took a nosedive in the early 1980s from a high of $850 (U.S.) an ounce to just above $400 an ounce, Mr. Munk and Mr. Gilmour decided that this was the time to start a gold company.
Barrick vs. Spot Gold
1. The beginning
May 1983: Barrick Resources goes public. Controlled by Peter Munk and his partner David Gilmour, the firm holds mainly oil and gas exploration assets, with a few gold interests.
July 1984: Barrick buys Camflo Mines, a Toronto company that has gold mining operations in Quebec; its first substantial gold asset.
Dec. 1986: Barrick buys the Goldstrike mine in Nevada, which proves to be an enormous gold resource. The company now owns six North American gold mines.
2. Early success
August 1994: Barrick buys Lac Minerals for $2.3-billion, after winning a bidding war with rival Royal Oak Mines. This makes it the world’s third-largest gold producer
3. Mergers and acquisitions
June 2001: Barrick merges with Homestake Mining in a $2.2-billion deal, creating the world’s second largest gold producer.
Oct. 2005: Barrick launches a hostile bid to buy Placer Dome. When the $12.1-billion deal closes in early 2006, Barrick is the largest gold company in the world.
May 2007: The company eliminates the last of its hedge contracts, allowing it to take full advantage of gold price increases (and exposing it to falling prices).
4. Trouble on the horizon
April 2011: Barrick launches $7.3-billion takeover of copper producer Equinox Minerals, only to write down half of that value two years later when copper prices slump.
June 2012: CEO Aaron Regent is fired after four years on the job, a period when the Barrick share price stagnated despite a big jump in the price of gold.
5. The decline
Oct. 2013: Barrick halts construction on its Pascua Lama gold and silver project that straddles the border between Argentina and Chile, and launches a $3-billion stock sale.
Dec. 2013: Barrick announces that Peter Munk will step down as chairman at the next annual meeting, in 2014.
Chart shows daily closes. Index: Feb 25, 1987 = 100
Graphic by Richard Blackwell and John Sopinski