But Mr. Munk’s desire to transform Barrick into a BHP was also emotional, which does not necessarily mean it was driven by shameless ego. Mr. Munk decried the loss of Inco, Falconbridge and Alcan to foreign takeovers during the great Canadian selloff in the middle part of the last decade (which also saw Stelco, Dofasco, Algoma Steel and a raft of energy companies vanish). At one point, during the “hollowing out” of Corporate Canada, he charged into the Toronto offices of The Globe and Mail to tell the editorial board that the sales would damage Canada’s ability to compete globally and that they should be reviewed carefully by the federal government.
When Mr. Munk talks about vanishing companies, he leaps out of his chair in the chalet and paces back and forth, raging like a Fortune 500 King Lear. He rattles off the names of global companies in small countries – Nestlé in Switzerland, Volvo in Sweden, Philips in the Netherlands. “Why don’t we have one?” he says. “Why the hell should the Brazilians take our best nickel company?”
Mr. Munk claims a merged Barrick-Glencore would have kept its Canadian identity even if Mr. Glasenberg became the boss. The trading division would have been headquartered in Switzerland, the mining in Toronto (the hometown of Mr. Glasenberg’s wife). However, the merger idea never made it beyond the offices of Mr. Munk and Mr. Glasenberg. Mr. Munk says gold “didn’t fit into the trading pattern” of Glencore, which uses ships and warehouses to trade coal and other bulk commodities. “It’s also not easy to get two cultures together and there would have been a great amount of resistance from my shareholders, to switch them when there was a runup on the gold price. It would be very difficult [for them to contemplate] that the future cannot be in gold alone,” he says.
But Mr. Munk got a sort of consolation prize in the form of John Thornton, who shares his ideas that Barrick should become bigger and more diversified. “Operating under the Canadian flag is a huge competitive advantage,” Mr. Thornton says in phone interview. “The priority is to be the world’s leading gold company and to be the leading, or a leading, copper company.”
A disastrous mining project
Mr. Thornton was Goldman Sachs’s president and co-chief operating officer until 2003, after which he delved headfirst into China. He served as a director of HSBC Holdings, the bank whose roots are in China, until 2013, sits on the international advisory council of China Investment Corp. and is a professor at Beijing’s Tsinghua University. He was appointed co-chairman in early 2012 and awarded a $11.9-million (U.S.) signing bonus whose disclosure a year later, when gold prices were sinking and Barrick got whacked by a $4.4-billion after-tax impairment charge, enraged shareholders. They voted against it, but since the vote was not binding, the payment went ahead.
Mr. Munk defends his man to the hilt, noting that the signing bonus was small compared to Barrick’s market value and arguing that Mr. Thornton is the right man to turn Barrick into a global mining leader. “It took me years to find John Thornton,” Mr. Munk says. “He wants to build a global entity.”
If falling gold prices were the only problem facing Barrick, Mr. Munk would be leaving it relatively unscathed. But he is not – Pascua Lama took the shine off his golden rule and delivered the message that the company needs to learn a thing or two about mine development in difficult terrain. The ultimate insult came when the market values of Vancouver’s Goldcorp and Barrick converged. At last count, Barrick’s Toronto stock exchange value was $27-billion (Canadian), Goldcorp’s $25.8-billion. The minor difference becomes shocking when you realize that Goldcorp’s annual production, at 2.67 million ounces in 2013, was well less than half of Barrick’s 7.66 million ounces.
Investors, in other words, are valuing Goldcorp’s per ounce production much more highly than Barrick’s. That will have to change if Barrick is to regain the confidence of investors. To do so, Mr. Thornton and Jamie Sokalsky, the CEO who replaced Aaron Regent, who took the fall for the Pascua-Lama disaster, will have to ensure that Pascua-Lama’s development costs are tightly controlled once mine construction resumes and that a cost blow-out like Pascua-Lama never happens again. “Priorities one through five are operational excellence,” Mr. Thornton said.