Barrick Gold’s chair lauds Glencore over BHP as a mining model

Ask Peter Munk, the founder and former chairperson of Barrick Gold Corporation, whom he most admires in the mining industry, and you get a passionate, digressive response, along with a possible clue to the direction of the world’s largest gold producer.

“What Ivan Glasenberg has done equals an Olympic record,” Munk said last week in an interview, referring to the billionaire chief executive at Glencore Xstrata Plc.

It was Glasenberg who led Glencore’s 2013 takeover of Xstrata Plc, the biggest in mining. Munk, who is 86 and retired at Barrick’s annual shareholder meeting in Toronto on Wednesday, says he’s good friends with the Glencore boss and admires his ambition to compete with the biggest miners, such as Rio Tinto Group, BHP Billiton and Vale SA.

“He’s taken Xstrata, he’s now very close to the BHP Billitons, he’s going to eat them all,” Munk said.

Munk’s comments are being scrutinised particularly closely after failed merger talks between Barrick and Newmont Mining Corporation degenerated this week into a public dispute between both miners.

Had it gone ahead, the merger would have been the kind of bold deal extolled by Barrick’s founder, combining the world’s two largest gold producers after the biggest slump in the market for the precious metals in 32 years.

Taking risks
For Munk, Glencore’s Glasenberg – who attended a farewell dinner for the Barrick founder on Wednesday night – represents the aggressive, buccaneering spirit that other large mining companies either have lost or never had. Munk says risk-taking is essential to expand and survive in mining.

“The only way not to make a mistake is to try nothing, and then we would have disappeared like many other penny stock companies in the mining sector,” Munk said.

According to Barrick, the merged Barrick-Newmont would have been based in Toronto. That would have helped fulfill Munk’s ambition of creating a genuine Canadian national mining champion, after a decade in which some of its biggest domestic rivals were acquired by foreign buyers.

John Thornton, the man picked by Munk to replace him as chairperson, led Barrick in the negotiations and would have been executive chairperson of Barrick-Newmont, people with knowledge of the matter said on April 19.

A former president of Goldman Sachs Group, Thornton had never worked in mining until he joined Barrick two years ago. Since then he’s helped oversee its strategy and explored investment from China, people familiar with the situation said in December. He is open to a potential diversification into metals other than gold, they said.

Taking Munk out of Barrick
Track record Barrick on Wednesday reported first-quarter adjusted earnings per share of 20 cents, beating the average analyst estimate by a penny. The shares fell 1.1% to $19.13 (Canadian dollars) in Toronto. Munk stepped down at the annual meeting, where he made a valedictory speech.

“You can take maybe Munk out of Barrick, you cannot take Barrick out of Munk,” he told investors, who applauded him after his speech.

Barrick fell 46% last year, outperforming the 49% decline in the 30-company Philadelphia Stock Exchange Gold and Silver Index. Gold dropped 28%.

Munk spoke on April 23 at Bloomberg headquarters, five days before Barrick and Newmont reported that their merger talks had been terminated. Dapperly dressed in a blue, chalk-stripe suit, he talked enthusiastically about Thornton, who was appointed co- chairperson of the miner in June 2012.

Chairperson’s sway
“The leadership is what’s going to define if we are disappearing in the next 10 years or going to a new plateau,” Munk said in the interview. “Thornton was one of the few people who had the global experience, the global understanding, the track record and the vision and all the qualities that I think a leader needs.”

While Munk has played an important role in Barrick’s key decisions over three decades, it isn’t clear yet whether Thornton will hold the same sway, said Jorge Beristain, an analyst at Deutsche Bank AG in Greenwich, Connecticut. Barrick added four new independent directors on Wednesday while two long-time board members stepped down. The changes follow criticism of Barrick’s corporate governance last year by Canada’s largest pension funds.

“Historically Barrick’s had a pretty powerful position of the chairperson,” Beristain said by phone April 28. “What’s the mandate that Thornton will be given and how much runway will he have to continue pursuing his agenda?”

BHP Munk said he sees no reason Barrick can’t compete with the world’s largest mining companies. He cited Homestake Mining Company, a US gold miner that Barrick acquired in 2001 for $2.4-billion.

“Fifty years ago there was only one gold company that any American knew,” Munk said in the interview. “Where are they today? A subsidiary of ours.”

In contrast to Barrick, Australia’s BHP Billiton, the world’s largest mining company, is “bureaucratic,” he said.

“Where is the ambition, the vision, the determination to win?” he said in New York. “Ivan has it.”

Spokespeople for BHP, Rio and Glencore declined to comment on Munk’s statements.

Peter Grauer, the chairperson of Bloomberg LP, parent of Bloomberg News, is a non-executive director of Glencore.

Ambition has defined Munk’s life and career. Born in Hungary in 1927, he escaped the Nazis as a teenager and arrived in Canada in 1948. His first fortune came from Clairtone Sound Corporation, the stereo and television manufacturer he founded and which eventually collapsed after Munk was ejected from management.

Building Barrick
There followed hotel and commercial real-estate businesses outside Canada. Munk returned and established Barrick, first as an oil and gas company, before switching to gold, an industry he knew little about.

Barrick expanded relentlessly, doing at least 29 deals since 1994, according to data compiled by Bloomberg. It became the largest gold producer with its $10.2-billion hostile acquisition of Placer Dome in 2006, also the largest gold takeover.

Not everything has gone smoothly. Barrick struggled to turn around its delayed and overbudget Pascua-Lama project on the Chile-Argentina border, where costs ballooned from an estimated $3-billion in 2009 to as much as $8.5-billion in 2012. Chief executive Jamie Sokalsky finally announced the project’s suspension last year.

Equinox failure
A Newmont deal has proved elusive – Munk says he sat down with then-Newmont Chairperson James Goldsmith two decades ago but failed to reach an accord. Several more doomed attempts at a deal followed.

There was also the $7.1-billion takeover of copper miner Equinox Minerals in 2011, an all-cash deal that Munk says was a mistake. Barrick wrote down more than $3-billion of its value within two years. But he’s also unapologetic and says that while mistakes are inevitable, more deals are needed in the industry.

“When you are aggressive and you want to grow, you can’t prevent always not being once wrong,” he said in the interview.

Munk says part of the reason he wants Barrick to succeed is so that Canada has a company that can compete with the largest miners internationally. He’s motivated by the disappearance of nickel producer Inco Ltd, which was acquired by Brazil’s Vale in 2007; Falconbridge, bought by Xstrata in 2005; and aluminum producer Alcan, purchased by Rio in 2007.

He says he’s hoping that sense of ambition will remain at the company after he hands over to Thornton.

“John Thornton of all the people I know, will have the motivation, the vision, the qualifications, the track record to carry on,” Munk said. – Bloomberg

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