Before I moved to Europe in 2007, I spent almost a decade in Toronto writing about the eradication of Corporate Canada. Most big companies I followed – Inco, Falconbridge, Alcan, Dofasco, Molson, Fairmont, Four Seasons, among others – were flogged to foreigners, their head offices downgraded to branch plants or eliminated. Were it not for ownership restrictions, the banks also would have surrendered to the cult of shareholder value – take the premium and hit the links. Canadians were sellers, not builders.
If there was one company that was safe from the takeover onslaught, it was Barrick Gold, I thought. I was both right and wrong, but more wrong.
At the time, Barrick was run by its founder, Peter Munk, the Hungarian-born Canadian patriot who wanted to build the world’s biggest gold miner. After achieving that goal, he mused about creating a diversified resources giant, the equivalent of a BHP Billiton or Rio Tinto under the Maple Leaf. But he was too late: By the time he was ready to put the pieces together, in the middle part of the previous decade, all his potential targets, including Inco, had been plucked clean from the Toronto stock market.
Still, Barrick was the biggest of its kind and devoted to keeping its head office in Toronto – Canada could lay claim to at least one world-class mining company. But after Mr. Munk stepped down as chairman in 2014, the Barrick narrative changed subtly, perhaps without Mr. Munk even noticing it (he was fighting a losing battle to stay healthy and died last March at the age of 90). John Thornton, the American former Goldman Sachs president whom Mr. Munk had brought in to stabilize the company after a series of damaging cost overruns, was quietly putting in place a plan that would see Barrick lose its Canadian identity.
The head office was shrunk, Chinese mining partners were brought in and Mr. Thornton, as the all-powerful executive chairman, launched a plan to turn Barrick into a high-margin gold company. That mission took him to Mark Bristow, the hard-charging South African chief executive of London-listed Randgold Resources, the most successful gold company in the industry, measured by shareholder returns. But how to snare him and its high-performing African mines?
In the end, Barrick offered to buy the smaller Randgold for about US$6-billion. At first, the takeover, which was announced in September and completed this week, seemed like a big victory for Barrick – and for Canada – one Mr. Munk would have approved of. Barrick wasn’t selling out – Randgold was. The head office would remain in Toronto. Barrick would retain its role as the top mining name on the Toronto bourse. After years of retrenching, the new Barrick would expand again. What wasn’t to like?
The reality was entirely different. We now know that, in effect, the deal was a reverse takeover. As CEO, Mr. Bristow and his lieutenants are now firmly in control of the enlarged company, including the board of directors. A board overhaul left just one Canadian director, Michael Evans, who lives in New York. Just two of the top 14 management roles are held by Canadians.
The Toronto head office has been gutted. In September, it was home to 150 employees, down from about 500 before Mr. Thornton took over. Today, only 65 remain and they work in non-front-line areas such as treasury services, human resources and accounting. Given Mr. Bristow’s passion for lean management structures and distaste for traditional head offices – he’s a field guy – it’s likely the employee head count will come down again. Imagine a company worth $30-billion with only a few dozen employees in its head office. It’s already becoming a shell and may soon exist only as a mail drop.
My own guess is that, in time, the new Barrick will replace the delisted Randgold on the London Stock Exchange, eliminating the Toronto listing and possibly the company’s Canadian domicile status, too. There is no doubt Mr. Bristow would like to list Barrick in London. But changing the company’s legal address might be potentially costly for tax reasons. A London listing would complete Barrick’s de-Canadianization and the hollowing out of the once thriving Canadian mining sector. The Canadian mining ecosystem – mining lawyers, deal makers, financiers, digital technicians, geologists – is already withering.
I have little doubt Mr. Bristow and his team will make money for shareholders. But what a loss for Toronto and for Corporate Canada. Could Barrick have taken another route that would have preserved its Canadian status and big head office? The answer is yes.
Mr. Thornton is an investment banker, not a mining manager. His appearances in Toronto were sporadic. He seemed more concerned with eliminating managers and head office costs than building a management team that could reverse Barrick’s fortunes after its disastrous project cost overruns. As executive chairman without a CEO to challenge him, he consolidated power in his office, meaning he could pretty much do what he wanted. As Franco-Nevada’s Pierre Lassonde has pointed out, there was ample mining management talent in Canada that could have been brought together to nurture Barrick back to prosperity and solidify its hold atop the global gold-mining industry. At the same time, Mr. Thornton seemed more concerned with making deals than organic growth. Surprise – that’s what investment bankers do: They sell and buy, buy and sell. Even Mr. Bristow was bought, in effect.
Barrick will probably thrive under Mr. Bristow, a no-nonsense, results-oriented boss. But it won’t thrive as a Canadian company. Mr. Munk would not be happy.