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A floor of empty cubicles is what’s left of Barrick Gold Corp.’s boom years. A lone whiteboard leans against a chair, the last vestige of hundreds of people who worked at the miner’s Toronto headquarters when gold was hurtling toward $1,900 an ounce (all currency in U.S. dollars unless otherwise noted).

The world’s biggest gold producer—one of Canada’s few global champions and formerly the envy of the mining industry—is on a desperate mission to recapture its magic after years of dismal results, humiliating missteps and rock-bottom investor confidence. Its share price on the NYSE is not much higher than where it was two decades ago.

The three-year slump in bullion prices to around $1,200 an ounce has devastated the industry. Mines that used to be profitable are now bleeding cash. In these conditions, Barrick’s every blunder—an ill-timed foray into copper, an attempt to build a mountaintop mine in the Andes—is exposed on its balance sheet, particularly in one remarkable number: Debt stands at $13 billion.

The company is vowing to cut that figure by at least $3 billion by the end of this year, even if it has to sell an heirloom or two to get there. A slew of top-rank Barrick veterans are gone and the company’s charismatic founder, Peter Munk, retired as chairman in April, 2014.

John Thornton, who was elevated from co-chairman to chairman when Munk retired, says he wants Barrick to “go back to the future,” to be true to its “original DNA”: lean, nimble and entrepreneurial. But how do you unwind history?




Goldstrike, the Nevada property that other miners had passed over, made Barrick's name and put the state on the map for the gold business. (Handout/Barrick)

In the 1980s, Goldstrike was a mine that had a great name and a modest output—50,000 ounces a year, eked out from the Carlin Trend, a barren 60-kilometre-long stretch in northern Nevada where gold was first discovered by Newmont Mining Corp. But Goldstrike had been passed over by Newmont, even though combining Goldstrike with its nearby properties would have made for economies of scale. Other miners also passed.

Barrick’s stature at the time was just as slight as Goldstrike’s—a no-name in an industry dominated by South African giants like Harmony Gold, Gold Fields and Anglo American.

Munk thought Barrick should be in the Carlin Trend. He sent his friend and closest adviser, Bob Smith, to check out Goldstrike. Smith, who was also Barrick’s president and top miner, believed there was more gold there than had been estimated. On his advice, Barrick bought Goldstrike for $62 million in 1986.

What happened next is as close as it gets to a fairy tale in the mining world.

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Smith thought there could be as much as 1.2 million ounces of reserves in the ground. In fact, Goldstrike would produce two million ounces annually for nine years. The mine put both Barrick and Nevada gold on the map. “It is up there in the top-five list of deposits that changed the course of history,” says David Palmer, CEO of Probe Metals Inc., who recently discovered a gold deposit in Ontario and sold it to Goldcorp. Inc. “That mine would have made anyone who found it and pursued it.”

A test of a good gold mine is whether it can survive low prices. Goldstrike did. A test of any business is whether it can survive an economic downturn. Barrick did—thanks to Munk’s decision to hedge. Selling future gold production at a fixed price barricaded Barrick from bullion prices that fell 40% to $250 per ounce in the 1990s.

Indeed, back then, Barrick was seen as making all the right moves at all the right times. Between 1989 and 1996—a period that concluded with some competitors being forced into bankruptcy—its stock price almost quadrupled on the NYSE to $30.36.

Goldstrike has produced 41 million ounces so far—a jaw-dropping amount for one mine. Although its best days are over, the mine will still be producing for another decade.

If Goldstrike is fading, Nevada is nonetheless at the centre of Barrick’s drive to position itself as an all-Americas proposition. The company has interests in 16 mines globally. But its five core mines—Goldstrike, Cortez (also in Nevada), Lagunas Norte (Peru), Veladero (Argentina) and Pueblo Viejo (Dominican Republic)—are all in this hemisphere, accounting for 60% of Barrick’s 6.3 million ounces of production last year. The core mines’ costs are among the lowest in the industry, at an average of $716 per ounce. That means Barrick can make a profit with bullion trading between $1,100 and $1,200 an ounce.


There are three things that make Nevada especially attractive to Barrick.

First is the sheer breadth of the ore body. Within the state, the company has 26 million ounces in gold reserves and 33 million ounces in gold resources—a measure that is not as bankable as reserves, but still promising. It’s the state that keeps giving. “If you look at the overall endowment, it is one of the best in the world,” says Doug Livermore, North American project director with Newmont, which has mines next to Barrick properties in Nevada and is its biggest rival. “There hasn’t been any indication that we have found it all.”

Barrick believes that another of its Nevada mines, Turquoise Ridge, has the potential to become a sixth core property. (Barrick owns 75% of the mine; Newmont owns the rest.)

One of Barrick’s new discoveries, Goldrush, boasts more than 10 million ounces in resources, making it one of the biggest gold discoveries of the past decade.

And Goldrush is only six kilometres from Cortez. That’s the second Nevada advantage: Barrick can use its existing infrastructure in the state rather than building everything from scratch—and run the risk of sinking billions of dollars into a dead end like the Pascua-Lama project in the Andes.

Finally, the state has long been a friendly place for miners. That’s no small matter given some of Barrick’s misadventures in developing countries. Digging up metal is predictable and easy compared to navigating in jurisdictions where policies are always changing. “We see our core business as partnering with host governments and communities to create wealth from the extraction of natural resources,” Thornton said in an e-mail. “We believe it is vital that the spirit of partnership is at the core of everything we do.”

Thus Barrick has tried to weave itself into the fabric of Nevada. It donated $10 million in the state in 2013. Its executive director in the U.S., Michael Brown, spends much of his time on community relations. He worked with conservation groups and government to protect the habitat of a threatened bird, the greater sage grouse. He is also working with state officials to improve the education system in Nevada, which has one of the highest dropout rates in the United States.

Brown says he knew Barrick had made inroads when he was asked to join a Nevada business council and Democratic presidential candidate Hillary Clinton mentioned Barrick’s community work at a public forum. “We were viewed as a northern mining company. Now we are positioned as an all-Nevada company,” Brown says.

Of course, there’s more going on than just community work. Brown says that in one of their first meetings, Thornton told him, “We need a board member from Nevada and a business-to-business presence in southern Nevada.” Barrick has since added a Nevada businessman to its board, Brian Greenspun, the publisher of a family-owned Las Vegas newspaper. As for Thornton’s latter point, the company is opening a new “global technology centre” in a suburb of Las Vegas, which is a seven-hour drive south from Elko, the hub for most miners in the state. Barrick is moving about 25 technology jobs from Toronto to Las Vegas.




Barrick Gold Corp. chairman John Thornton speaks during the company’s annual general meeting in Toronto on April 28, 2015.

If he’s made friends in Nevada, the 61-year-old Thornton is a polarizing figure in the close-knit Canadian mining community. Best known for starting Goldman Sachs’s business in China, his network includes the country’s central banker and the head of its anti-graft watchdog. He is co-chairman of the Brookings Institution, one of the most influential think tanks in the world.

For many people in the gold business, a bullish view of the yellow metal is bred in the bone. Thornton takes a more pragmatic view. He likens the business to being on a high wire without a net, since gold prices can swing wildly with scant warning. (True enough: Presumably shareholders appalled by Barrick’s performance have also noticed that shares of both Newmont and Goldcorp have declined 50% over the last five years; Kinross Gold Corp. is down almost 90%.) Thornton wants Barrick to have no debt and to be profitable even at low gold prices so a dividend can always be paid.

That reassures those investors who view gold as a safe haven. But some aspects of Thornton’s approach unsettle mining types and underline his outsider status in the industry. He shuns the traditional circuit of mining conferences. His hiring of a former British military commander as chief of staff raised eyebrows; people within and outside of the company are unsure of what exactly Richard Williams does.

One of the biggest knocks against Thornton is the implosion of merger talks with Newmont last year, which shocked the industry—the union would have consolidated the two companies’ assets in Nevada and potentially cut $1 billion in annual costs. Each company blamed the other; Newmont’s board of directors took the unusual step of publicly calling Thornton obstructionist.

In the wider business community, appraisals of Thornton range from “brilliant” and “a big thinker” to “controlling” and “volatile.”

Thornton has tapped some of his former colleagues to join Barrick. Woo Lee, a former U.S. State Department representative who used to work for Thornton’s private firm JL Thornton & Co. LLC, now represents Barrick in China. Michael Evans, one of Thornton’s former partners at Goldman Sachs, sits on Barrick’s board. Nevada director Greenspun is, like Thornton, connected with the Brookings Institution.

“[Thornton] likes big challenges. I think he wants to leave a legacy.”
Dominic Barton, global managing director of McKinsey & Company

To some, all this echoes how Barrick’s board under Munk was beholden to its founder. “My biggest fear is that the chairman’s role becomes an autocracy,” says Chris Mancini, analyst with the Gabelli Gold Fund, which owns Barrick stock. “What you don’t want to see is a board that is hand-picked by the chairman, especially for Barrick, where there were lots of issues in the past relative to the way Mr. Munk ran the firm.” (Two long-serving Munk loyalists—Brian Mulroney and Howard Beck—retired from the board when Munk stepped down in April, 2014.)

People close to Thornton say he listens to criticism and understands that not everyone is going to see things the way he does. “He is not one of these people who says ‘water off the duck’s back,’” says Michael Evans, a Barrick director who helped Thornton establish Goldman in China and worked with him for a decade. “He is a very good listener. He listens to the perspective that is being presented and folds that into his calculus.”

Dominic Barton, global managing director of McKinsey & Company, says Thornton has a “combination of very big ideas and then he is an executer.” He adds: “He is a detailed guy. Often you have one or the other. He does both.” Barton, who got to know Thornton as their respective firms ventured into Asia, observes that Thornton “has had to deal with some pretty tough stuff that can shake a corporation to its foundation.” He cites Thornton’s role as a director of Ford Motor Co. in recruiting Alan Mulally to save the company from bankruptcy. “[Thornton] likes big challenges. I think he wants to leave a legacy,” says Barton.

Thornton has put his mark on Barrick with a raft of staffing changes. But the move to a more streamlined company was already under way when he became co-chairman in June, 2012. Barrick had let go middle managers in 2012 under Munk and then-CEO Jamie Sokalsky’s leadership.

On his own watch, Thornton eliminated the CEO position and replaced it with two co-presidents. He created an executive position for talent management, as well as the chief of staff post filled by the former soldier, Richard Williams. Thornton shed more of the layers between head office and the mine site, and made it clear that he wants every mine to be run like a business, with head office serving to allocate capital and people.

Between the old regime and the new one, Barrick has shed nearly 10,000 jobs through the closing of regional offices, mine sales and other cuts. It now employs 17,500 worldwide, down from 27,000 in 2012. Thornton aims to whittle Barrick’s Toronto head office down to 140 people this year, from 400 in 2012.




Barrick’s Cortez Hills deposit in Nevada is seen in this undated handout photo. (Barrick via Bloomberg)

Thornton appears to be following the model of Randgold Resources Ltd., one of the handful of go-to gold mining stocks for investors. The company has a small head office; its mines, in Africa, are run as individual businesses. It has managed to be successful despite operating in politically risky countries like the Democratic Republic of Congo. Ironically, the company’s CEO, Mark Bristow, modelled Randgold on Barrick. “My greatest admiration for a start-up and a quality company was Barrick in its early days,” says Bristow. “It had a small head office, it had high-quality assets, it was really entrepreneurial, and it didn’t take prisoners,” he says. “Then its qualities changed from being profit-driven to wanting to be the biggest and that just didn’t work.”

It looks like Barrick gets it. At the Cortez mine in Nevada, manager Matt Gili says he is constantly being told to run his mine like a business. Gili, formerly of Rio Tinto, joined Barrick in 2013 as the company was starting to transition. He found being accountable for everything at the mine refreshing. When he was running Rio Tinto’s big copper mine in Mongolia, Gili reported to at least five different executives. Now he reports to Barrick co-president Jim Gowans, a long-time mine operator who joined Barrick in 2014. Gowans is constantly emphasizing that the goal is to make “free cash flow.”

Free cash flow—the cash left over after all expenses, including interest on debt—is the purest measure of a company’s profitability. “Jim has been drilling it in to us: The prize is not making gold. The prize is making free cash flow,” says Gili.

Thornton is requiring every operation to deliver a 15% return on invested capital in the downturn and has said that the company will “defer, cancel or sell projects that cannot achieve this target.”

This idea, like the focus on the Americas and generating free cash flow, actually was inculcated when Munk and Sokalsky were running things. What is new under Thornton is the specific 15% investment hurdle and the tying of management pay to that target, as well as to free cash flow and debt reduction. “They are saying all the right stuff. The question is: Will they deliver?” says Pawel Rajszel, an analyst with Veritas Investment Research. “Because of history, the odds are they won’t. Because it’s a new executive team, maybe they will.”


Getting back into investors’ good books will also require stepping back from the debt precipice. For most of its life, Barrick’s balance sheet was pristine and the company bragged about its top-tier credit rating. When gold nosedived to below $300 an ounce in 1997, Standard & Poor’s downgraded a slew of Barrick’s competitors. Newmont was put on credit watch. But the rating agency left Barrick’s coveted “A” rating unchanged, citing its low cost structure and significant hedge position.

Barrick held onto that rating for another 15 years. But by July, 2012, its credit was downgraded to the second-lowest investment-grade rating thanks to ballooning costs at Pascua-Lama and the $7.3-billion (Canadian) all-cash acquisition of copper producer Equinox Minerals Ltd. in 2011. “We have signalled that the debt burden is too high for the rating and we have had a negative outlook on the rating for some time,” says Darren Kirk, senior credit officer with Moody’s Investors Service.

Today, Barrick’s debt is at the lowest investment-grade rating—one level above junk status. The company raised $3 billion in a share offering to pay down part of its debt in 2013. Now it has announced that it is talking to potential buyers about its mines in Australia and Papua New Guinea. It could also get rid of any of its other 11 non-core mines around the world, as well as its majority stake in its spun-off Tanzanian operation, Acacia (which was originally dubbed African Barrick).

The challenge in offloading these high-cost assets is getting a good price in a dire market. So Barrick has been forced to consider selling one of its prized mines—Zaldívar, the Chilean copper mine that generates so much cash that it has been referred to as “the Andean ATM.”

Thornton acknowledges the difficult choices the company has to make. “We are focused on gold. Zaldívar is an excellent asset, but it is not core and we have made a commitment to reduce our debt,” he said in an e-mail. “That means making some hard decisions and we believe our owners want to see that we are capable of taking the hard decisions for the greater good of the business.”





In some ways it doesn’t seem fair that Barrick’s share price is languishing. The company has some of the best gold mines and projects in the world. It holds 93 million ounces in reserves and 94 million ounces of resources. When precious-metal prices started to plummet in 2012, Barrick was the first to take decisive action and suspend mammoth projects and slash costs. Today, it has some of the lowest production costs in the industry.

And yet, Barrick’s stock is trading at multiyear lows of around $13. The reason: Investors simply don’t trust Barrick any more. This may be the hardest part of the turnaround. Barrick has to be seen again as doing the right things at the right time. “Then we will start to see positive momentum in the stock,” says Kelvin Dushnisky, Barrick’s co-president, and one of the few survivors from the old regime. Dushnisky, who performs traditional CEO duties such as taking questions at the annual general meeting, joined Barrick in 2002. Back then, it was the “go-to place in the industry”: Everyone wanted to work for Barrick.

That is not the case today, Dushnisky says. “I would like us to be the overwhelming choice, with everyone else a far distant second. Today, are we there? No. We are not there yet.”

Over the past five years, the company has repeatedly blindsided investors. In 2010, Barrick said it was getting out of Africa. A year later, it bought a pure copper company, Equinox, for its Zambian copper mine. Apart from the flip-flop on Africa, Barrick never telegraphed to shareholders that it was interested in diving deeper into copper.

Meanwhile, costs to build Pascua-Lama swelled to $8 billion from an initial projection of $3 billion.

Then, seemingly out of nowhere in 2012, Thornton was appointed co-chairman and later was awarded a $11.9-million signing bonus. Traditionally quiet Canadian pension funds balked and protested the bonus.

Munk extolled Thornton’s connections in China, leading investors to believe Thornton would soon broker a deal in the Middle Kingdom. Then, in some of Thornton’s first public comments, he said he could see Barrick diversifying into other metals.

Even Thornton’s “back to the future” mantra has confused long-time investors. “It’s a nice catchphrase but I don’t know what it means,” says David Christensen, CEO of ASA Gold and Precious Metals, which has held Barrick stock for decades.

In 2013, Thornton and Barrick courted the major pension funds that had voted against his signing bonus. The miner overhauled its compensation structure so that executives’ pay would be tied to goals such as debt reduction. But since then, one of the funds it cultivated—la Caisse de dépôt et placement du Québec—has sold its shares.

The biggest blow to the early days of Thornton’s leadership—and to the drive to build shareholder trust—came in March when Barrick disclosed that its board had increased his compensation for 2014 by $3.4 million, a 36% pay raise. And this just a year after the company revamped its executive pay plans in an attempt to placate shareholders.

The company says the chairman’s pay is not based on achieving quantitative goals such as generating cash (as is the case with other executives), but rather on the board’s appraisal of how well he has met other goals, such as building stakeholder relations and developing the company’s growth strategy— achievements that are more difficult to assess. Indeed, when it comes to one key group of stakeholders—the owners of the company—Thornton seems to be doing the opposite of his assigned task simply by being paid so much.

“Their investors have lost confidence. There is no question about it.”
Pierre Lassonde, chair of Franco-Nevada Corp.

Thornton did define a strategy—the slashing of debt and focus on gold. But as the plan was so recently announced, some investors complained that he was getting paid before delivering results. And the pay hike came in a year when the company’s stock lost a third of its value. Thornton did come through by putting skin in the game, just like he says the rest of the leadership should do. Of the $12.9-million pay package he received for last year, $7 million was used to buy Barrick stock. Thornton now owns around 1.4 million shares in Barrick, half of which he purchased with his own funds.

But over all, investors were not impressed. They voted against Thornton’s pay hike at Barrick’s annual meeting in April. And the four board directors involved in setting his compensation received the lowest shareholder approval—this in a country that routinely rubber-stamps director elections.

When Thornton took to the stage in his first address to shareholders, he told them, “We have heard you loud and clear,” and vowed to change how he was compensated. However, the shareholder vote is non-binding. The episode didn’t have the markings of a new era.

“Their investors have lost confidence. There is no question about it,” says Pierre Lassonde, a gold veteran who chairs a rewarding mining stock, Franco-Nevada Corp. “What Thornton is doing is saying we have to regain investors’ confidence and here is what I am going to do. And they are saying show me, which is, frankly, the attitude I would expect.”

When you take away the “back to the future” phrase and ignore the pay raise, Thornton’s strategy makes sense, investors say. Thornton is trying to reduce debt. He has made free cash flow a priority. He wants his executive team and top staff to act like owners by investing a significant amount of their wealth in the company. He has hired some respected names from inside and outside the industry.

Thornton says shareholders have been supportive of his strategy. “They tell us they like what they are hearing and that has been reflected in the strength of our share price since we outlined the strategy,” he said in an e-mail. (Changes in the price of gold could also be a factor.) “Of course, now they expect us to execute and that is our focus.”

Seymour Schulich, a senior Bay Street figure with a long history in gold, has confidence in Thornton even though he disagreed with the pay raise. He likes Thornton’s empowering of mine managers, and he likes that Thornton has a stake in the company. He believes Barrick’s stock is cheap and that the company has the best assets in the world.

Thornton has heard the good and the bad, and his message—his calculus—is this: “Judge us by our actions. Hold us accountable for doing the things we say we are going to do.”

You can be sure investors will.

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