Copper deal will flush cash into Barrick: Munk

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Peter Munk's defence of Barrick Gold Corp.'s multibillion-dollar copper foray is simple: It's a cash cow, not a change in direction.

Speaking at the Bloomberg Canada Economic Summit in Toronto Tuesday, Mr. Munk, the 83-year-old founder and chairman of Barrick, said the global gold-mining giant needs to generate enormous amounts of cash if it wants to keep increasing its gold production. The most efficient way to do that, he maintained, was through the deal announced last month to buy Equinox Minerals Ltd. for $7.3-billion.

"It was the only company that we could buy that could actually add up to $1-billion to $1.5-billion net cash to our ability to use that cash to develop new gold mines," he said.

"I know it's unorthodox. But if you only do orthodox things, you're just following the herd," he said. "You can't become Number 1 in the industry if you only do what everyone else does."

Mr. Munk's comments were his latest effort to explain an acquisition that confused and disappointed many investors and analysts. Critics are concerned about the high cost, the political risk involved in Equinox's operations in Africa and Saudi Arabia, and most of all the company's apparent drift away from its focus on gold.

But Mr. Munk said that for a gold company of Barrick's heft to keep growing and dominating its sector, it needs big acquisitions - and substantial cash to pay for them.

"To make a difference - to be called a growth stock - we'd need to buy a gold company that really moves the needle."

Mr. Munk said that with the cost of gold assets soaring, such a significant gold acquisition would cost more than $15-billion.

"Gold company valuations have been driven up very high," he said, making big gold acquisitions "difficult to justify" right now.

He added that even a single gold mine would cost more the $3-billion to construct in today's market.

A copper mine, on the other hand, has a mine life five to seven times as long as a typical gold mine - providing substantial long-term cash flow that provides a foundation for Barrick's continued gold growth.

The deal raised questions about Barrick's confidence in the sustainability of record-high gold prices, but Mr. Munk insisted he remains bullish on gold's long-term opportunities. He suggested that currencies will remain under pressure - and gold will remain an attractive alternative - as long as the world's sovereign-debt problems remain unresolved.

"I don't think we've truly found solutions," he said, referring to the European Union's efforts on Greece and Ireland as nothing more than "Band-Aid" remedies.

But he declined to forecast where the gold price is headed.

"I may be many things, but I'm not exactly a [gold]futures forecaster," he said. "Our job [at Barrick]is to use gold efficiently - to maximize cash flows."

"Anybody can make money in commodities when the commodity price is high," he added. "The trick is making money when it goes down or is flat."