Lingering challenges await incoming Barrick chief
Being the world’s biggest gold producer hasn’t yielded the investor blessings you’d expect, as retiring co-founder Peter Munk, 86, can attest. The Toronto philanthropist has done well to step aside at Barrick Gold Corp., having prolonged his tenure in vain hopes of not leaving the firm in its current difficult condition.
New blood is overdue, and Bay Street has reacted well to the announced succession next year of John Thornton as the Torontobased Barrick’s first post-Munk chairman. For good measure, Barrick also added mining expertise to a board of directors lacking it, in the appointment of geologist-financier Ned Goodman, one of Bay Street’s most highly regarded investors.
Thornton’s 11 years running a business school in China, and the wealth of business contacts he made during that tenure, will serve a new Barrick in the reinvention ahead.
After a year-long internship as Munk’s co-chairman, Thornton will be able to hit the ground running, first in addressing lingering challenges. Those include shedding Barrick’s underperforming African operation, tapping sovereign wealth funds to ease Barrick’s debt burden, and recruiting a partner for its long-troubled PascuaLama project. Or perhaps shedding that South American albatross altogether, given the likely irreparable reputational damage to Barrick over that asset’s severe environmental problems and cost overruns.
The new Barrick that Thornton envisages will diversify beyond gold and re-embrace hedging. Those will be a couple of hard sells with the board, one expects, given Barrick’s earlier disastrous experience with hedging and equally dismal experience from the acquisition of Equinox Minerals Ltd.
Yet in a mining world that is shifting to the East, as Munk has noted, a chairman steeped in Asian culture is an undisputed plus. It’s also a world of ever larger megaprojects that even giant Barrick can’t solely finance. Barrick can now lean on the worldwide capital-markets contacts of Thornton and Goodman so that the company’s risk exposure is reduced even as its breadth of income sources widens.
Investors, including some of Canada’s biggest institutional investors, balked at Thornton’s $12-million signing bonus last year, as well they might given Barrick’s appalling stock-market performance. Barrick has lost more than half of its stockmarket value over the past five years, compared with a 54-per-cent increase in the S&P/TSX Composite during that time. Mind you, peers Kinross Gold Corp. of Toronto (stock down 76 per cent in that period) and Vancouver’s Goldcorp Inc. (down 35 per cent) have also been clubbed by rising production costs and lower prices.
No doubt, Thornton wants to see a Barrick that looks more like, say, Toronto’s Franco-Nevada Corp., a diversified play in gold, platinum, oil and gas and other resource assets whose stock has soared by 130 per cent in the past five years.
The new Barrick will tread more warily, not always Munk’s forte. That doesn’t change the fact that Munk has been one of the industry’s greatest risk-takers and builders, and his bowing out is not altogether a cause for celebration.