Barrick Gold Corp. publicly announced the pending retirement of chairman Peter Munk on Friday, after a week in which bankers faced a tepid response to the company's $3-billion (U.S.) share sale.
Barrick said Friday that it expected to update investors before year-end on various initiatives to renew its board, following discussions this year between directors and institutional shareholders regarding compensation practices and governance. The initiatives include "succession in the chairman role at the company, consistent with Mr. Munk's desire to retire as chairman," Barrick said.
The message that Mr. Munk would announce his retirement by year-end had been quietly conveyed by some bankers working on Barrick's big share sale over the past week, according to sources familiar with the situation. Some investors had indicated they wanted more clarity on the board revamp before agreeing to buy any stock.
One asset manager, speaking on condition of anonymity, said he was told by a banker advising Barrick on Monday that an announcement on Mr. Munk's future would come by year-end. Another fund manager said he was told by a banker working on the share sale on Friday, Nov. 1 – the day after the offering was unveiled – that Mr. Munk's announcement was forthcoming. He was then told on the following Monday that no such announcement was imminent and that instead, guidance would come soon.
A third person familiar with the situation said that Barrick had for some time internally laid out a succession plan for Mr. Munk as well as that of another long-term board member, former prime minister Brian Mulroney. This person also said that at least one large investor was given notice prior to the official announcement.
Barrick's public disclosure was less specific. In March, Mr. Munk signalled that he was seeking a successor but gave no details about when he would go.
Last week, when Barrick announced third-quarter profit of $172-million, the company signalled that board changes would be announced by year end, but there was no specific reference to Mr. Munk. It was in an amended prospectus for the share offering, made public on Friday, that the company mentioned Mr. Munk by name and added guidance about the timing of his departure.
"It looks like he desires to retire as chairman of the board as of the next [annual general meeting]," said Robert Gill, vice-president and portfolio manager with Aston Hill, which holds about 450,000 of Barrick's shares. "I do think it is good news for the company. It is nice to see something more tangible. I am surprised the stock has not reacted to the news yet."
A Barrick spokesman declined to comment, and said Mr. Munk was not available to comment.
Barrick shares have plunged in recent years as lower gold prices and writedowns from high-priced acquisitions and mine developments have taken their toll.
But Barrick has started taking concrete steps to improve its operations and financial performance, cutting costs and identifying projects where capital spending can be reduced. The gold miner shelved its Pascua Lama project, a money pit in recent years, and is selling shares in order to pay back a portion of its heavy debt burden.
But Mr. Munk's future with the company remained a big question mark.
The uncertainty weighed on the latest deal, and Barrick's bankers have struggled to move the $3-billion of stock. A group of underwriters, led by Royal Bank of Canada, GMP Securities and Barclays, bought the stock and is attempting to resell it at $18.35 a share to investors. Barrick's shares have consistently traded below the offer price, and on Friday closed at $18.22 in New York. A drop in bullion prices on Friday to below $1,300 an ounce also cut demand for gold stocks.
With the stock available cheaper on the open market, there is little impetus for investors to buy shares from the underwriters at the initial offering price. As of Thursday night, when bankers working on the deal conferred, there were said to be orders for 75 per cent of the deal. On Friday, there was no sign the offering was much closer to being done. Now there is a widespread expectation that the deal may not be fully sold by Nov. 14, when the transaction is scheduled to close.
If buyers can't be found for all the stock at $18.35 a share, the underwriters will have to consider cutting the price, in what is called a "clean-up." The repricing won't affect Barrick, which has already sold the stock to the underwriters, but it could eat into the fees that the banks would have otherwise earned – amounting to $90-million – or even lead to a loss on the deal if a price cut is very deep.