When Mr. Munk talks about Pascua-Lama, his otherwise strong voice falls to a whisper and he slumps in his chair. Indeed, the scale of the disaster is hard to fathom. In 2013, Barrick reported a loss of $10.4-billion (U.S.), due largely to the writedowns related to Pascua-Lama and the overpriced 2011 purchase of copper producer Equinox Minerals.
What went wrong? To this day, Mr. Munk insists he doesn’t know how the costs soared to outrageous levels and why corrective measures were not taken earlier. It’s a classic mystery: Who knew what when? “I could not believe the day [in 2012] when I was told we could be multibillion dollars over budget,” he says. “For 30 years, we never missed a budget.”
Pascua-Lama is located at a height of 5,000 metres in the Andes, on the southern reaches of the Atacama Desert. Because of the dizzying elevation, location in two countries and proximity to glaciers, it presented a unique geopolitical, engineering and construction challenge. The air is thin and the high winds and low temperatures can be vicious. Feeding the thousands of workers and removing the garbage and human waste they produced proved to be a hideously expensive logistical nightmare. “Every hour of productive work required probably five hours of work to keep [the employees] up there working,” Mr. Munk says.
As Barrick was building, the environmental regulations multiplied. “Each new rule brought the need to build another wall,” he says. “Resolving each and every one of them resulting in more building. The cost of building escalated to the point it was unreal.”
The development costs went to $8-billion from the initial $3-billion estimate (about $5-billion has been spent so far). By last autumn, Barrick had had enough and put the project into cold storage. It plans to revive it once gold prices recover and it figures out a ways to control the costs. Bringing in a development partner to spread the risk and the workload is one idea that is gaining currency within Barrick’s executive offices.
Enter Mr. Thornton, who is impeccably connected in China. “One thing would be to consider the Chinese as operational partners either for Pascua Lama or the other mines,” he says, referring to the other five big deposits nearby. “The Chinese are very good at bringing in projects on time and on budget.”
Mr. Munk refers to a “specific event” that he and Mr. Thornton had hoped to announce by now. He won’t say what it was, though it may have been news about a Chinese partner or possibly the sale of African Barrick. Barrick tried to sell African Barrick, Tanzania’s biggest gold producer, to China National Gold Group, but those talks collapsed last year. Since then, Barrick has been paring back its controlling stake in African Barrick, although an outright sale of the remaining 64-per-cent investment is not out of the question.
The “event” could also been the purchase of a large gold producer. But given the sharply reduced value of Barrick shares, their use as a takeover currency has vastly diminished.
Mr. Munk has a month left on the job. He will no doubt step down from the board with a standing ovation at the annual general meeting. In spite of the Pascua-Lama fiasco, he did build the world’s biggest gold company and, for prolonged periods, created a lot of wealth for shareholders. He also spared Toronto from mining company oblivion during the hollowing-out era. While he lived well, he did give away much of his wealth – $200-million (Canadian) and counting – to good causes, such as the Peter Munk Cardiac Centre at Toronto’s University Health Network.
Barrick will never be far from his heart. He hopes Mr. Thornton and the senior executives will ask his advice on how Barrick can evolve into a global mining champion. He would love to see Barrick achieve that status before he goes to the great golden ore body in the sky. “Barrick is my legacy,” he says. “The thing is to leave something behind that is meaningful, especially for me. I’m an immigrant. I owe Canada. Canada gave me everything I have.”