“Please remember this has been our 28th year in mining. … We started off with one goddamn mine at Wawa, Ont., and we are now the biggest in the world with 23 mines. [Major cost overruns] never happened. It happens now? When you have the most sophisticated people and you’ve got unlimited financial resources and top management? How could that happen? It was incomprehensible to me.”
The Equinox deal
The Equinox deal was part of Barrick’s evolving philosophy to diversify beyond gold.
Barrick CEO Aaron Regent at the time told media that there was merit to diversification, and Mr. Munk as well thought the company needed another metal to help mitigate a downturn in gold prices.
“Nothing is more volatile than commodities, and so I begged my board, that guys, you just got to move into other areas, and you got to take advantage of this fabulous share price and then broaden the base, so when one commodity goes down for some reason, the other one maintains you and vice versa,” Mr. Munk said.
Two of Barrick’s directors initially panned the proposal. Others agreed it was a good idea, including Nathaniel Rothschild, a member of the Rothschild family, who was excited because he thought Equinox would generate $1-billion in cash flow. In the end, the board unanimously agreed to acquire the copper company.
Equinox’s management would have accepted Barrick shares instead of cash, but some Barrick board members did not want to dilute Barrick’s shareholder base and thought it would be wise to take advantage of the cheap capital. The company borrowed $6.5-billion (Canadian) and used some of its existing cash to buy Equinox.
Equinox’s Lumwana copper project in Africa was well known in the industry. Newmont had expressed an interest but never made a bid. China’s Minmetals quickly retreated, saying it did not see the value at Barrick’s price.
“But this is where Munk should be hung, that I fell for that, because it was conventional wisdom” that metals prices would continue to soar, Mr. Munk said.
“Things are good, that’s when you’ve got to pay attention, that’s when hubris takes over, the self-confidence, that oh of course you follow exactly what everybody says.”
It was downhill from the moment Barrick bought Equinox. Shareholders and analysts were confused. Why did Barrick buy a pure copper company? Was there a change in strategy?
In June, 2012, Barrick fired Mr. Regent, citing disappointment in the company’s stock price, and appointed its chief financial officer Jamie Sokalsky as CEO.
At the same time, Barrick appointed Mr. Thornton as co-chairman – a move that took shareholders and some of Barrick’s managers by surprise.
The bad news continued. In 2013, the Dominican Republican government threatened to halt shipments from Barrick and Goldcorp’s Pueblo Viejo mine. The companies renegotiated a deal that gave the Caribbean country a larger share of the royalties.
In late April this year, Moody’s downgraded Barrick’s credit rating to the second-lowest investment-grade rating and Standard & Poor’s downgraded the gold producer to the lowest investment-grade rating, one above junk status.
Barrick was warned. The company had too much debt and had to fix its balance sheet or its borrowing costs would become prohibitive.
All the while, investors were becoming more vocal about Barrick.
Canadian pension funds, traditionally a quiet bunch, issued a public statement denouncing Barrick’s decision to award Mr. Thornton with a $11.9-million (U.S.) signing bonus.
Mr. Munk reached out to his institutional investors. Some of the big investors visited Mr. Munk in his office.
Mr. Munk said he tried to explain to his shareholders that he had to pay the signing bonus because he was competing with major private equity firms in New York. But his sales job fell flat. Investors still voted overwhelmingly against the pay package at Barrick’s annual meeting of shareholders this year.
Barrick insiders describe Mr. Munk as domineering on the board and say members often acquiesced to the chairman.
“He is a very charismatic individual, I can see the board having difficulty saying no, because he is charismatic,” said Pierre Lassonde, Newmont’s former president, who has known Mr. Munk since Barrick acquired Goldstrike.
Mr. Munk agrees that he has a strong personality but denies the accusation that he controlled the board, where his son Anthony Munk is also a director.
“Am I strong, articulate and pushy? Guilty on all three accounts. Does that mean that because I am pushy I am going to convince somebody who has known me as long as Howard Beck if he doesn’t think I am right?” he said.
“As much as you have heard opposite things that I am an oppressive control freak, you must give enough human credibility and dignity to my board that if I say something that is wrong that every one of them will stand up and say: ‘It is wrong, Peter Munk.’ ”
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