Barrick chair lashes out at industry as he doubles down on strategy
With shares slipping and top exec gone, Thornton faces leadership test
With Barrick Gold Corp. about to lose its title as world’s largest gold producer, and its stock nearing a low-point for the year, executive chairman John Thornton called a town-hall meeting this week to insist his strategy is working and the rest of the industry has it wrong.
Describing it an “industry disease,” Thornton lambasted his rivals, bankers, researchers, shareholders and others who value growth in production over growth in profits, according to a partial transcript that Barrick posted on its website on Thursday evening.
“The whole industry gets itself into a bad habit,” he said. “It’s kind of an echo chamber, and they encourage each other towards what I would call bad behaviour. They don’t see it that way, but I see it that way.”
Thornton, 64, a latecomer to the mining industry who resides in an $81.5 million limestone villa in Palm Beach, Fla., joined Toronto-based Barrick as co-chairman in 2012 after a previous career as a president at Goldman Sachs, where he spent time in Asia.
Now, he is facing a leadership test: Since eliminating the role of a chief executive officer in 2014, Thornton has been at the helm of the company as its executive chairman. And the company is struggling to gain investor confidence, with its stock on Friday trading at $10.86, down 41 per cent from its 52-week high of $18.35.
Last month, his top-ranking executive Kelvin Dushnisky announced his departure after 18 years at the company to become chief executive of rival AngloGold Ashanti Ltd. in South Africa, the third-largest gold producer in the world. The move came as Barrick Gold prepares to cede its title as the largest gold producer in the world to Colorado-based Newmont Mining Corp, which expects to produce between 4.9 million and 5.4 million ounces of gold.
Barrick’s production decline preceded Thornton’s arrival, however, dropping from a peak of 8.6 million ounces in 2006, to guidance of between 4.5 million and 5 million this year.
Still, Thornton used his speech to dismiss concerns about production declines, and to signal future directions the company could take, such as more partnerships with China. He emphasized that Barrick is decentralized and not hierarchical, even casting Dushnisky ’s departure as evidence of a healthy organization because it produces talented individuals.
“When Kelvin goes from his role here to be a CEO of a mining company, that’s good for him and good for Barrick,” said Thornton, adding it makes the working relationship between the next top three ranking executives “cleaner, clearer and easier.”
He also was resolute that production quantity is a less important metric than quality.
Barrick, he said, would continue to divest assets and gold mines that are not “tier one” unless they serve a strategic purpose. He defined tier one as being among the top 10 or 15 mines in the world, and specifically ones that can produce at least 500,000 ounces of gold per year, sit on the better half of the cost curve and have a lifetime of at least 10 years.
The company remains focused on growth by finding new deposits rather than acquisitions, he said.
“It’s a lot cheaper generally than buying an asset,” he said.
He also expressed hope that the company would deepen its relationships, trust and capacity to partner with mining companies from China, noting that country’s appetite for resources such as copper are enormous.
Because copper is often found alongside gold, he suggested the company may look to form partnerships to branch into that metal. Building trust and a stable of Chinese mining companies as partners will help secure the company’s future, he said.
“It’s not as though there are five other mining companies building that capability ” to partner with the Chinese, said Thornton, “because it’s hard to build. So once you’ve got the capability you should capitalize on it.”
Such partnerships can help Barrick complete difficult projects, he said. Indeed, last month, the company announced that it asked Shandong Gold to study building the economics of building a mine in an area near the Chile-Argentina border, where it has struggled — investing $7 billion by one estimate, only to decide to shelve the project.
Eventually, Thornton said he hopes the partnership will bloom into a series of mines in that same area, where Barrick controls vast land holdings.
“It’s difficult to do,” he said, “As you know there are very few people in this organization who have a depth of experience with the Chinese and the Chinese culture, and vice versa. But it’s going very well.”
Thornton also took a moment to knock some of his predecessors at Barrick — for not always having the best processes in place to attract and retain talent, which he characterized as a work in progress.
He insisted that the company has been more disciplined about acquisitions than it has in the past, such as 2011 when it acquired Equinox Minerals Ltd. for $7.3 billion, only to write off more than half of that value less than two years later.
“Mining companies as a whole, and Barrick in particular, have had a lousy recent history of buying companies,” said Thornton. “The acquisition of Equinox might have been if not the worst, one of the five worst acquisitions in history.”
Thornton’s willingness to criticize Barrick, and the rest of the mining industry, paired with the fact that he does not live in Toronto nor possess a mining background, hasn’t always endeared him to his colleagues.
Such antipathy fuels concern about how he will protect the legacy of Peter Munk, the charismatic founder of Barrick Gold, who died earlier this year. Munk was revered for building the world’s largest gold company, which, to many Canadians, is iconic.
“My own view has been that Thornton is a product of Goldman Sachs by that I mean he’s a transaction-oriented figure,” said one industry executive who works with Barrick. “He doesn’t have the DNA of a mining manager, or a mining family.”
His focus is on cost-cutting and making deals, but building mines is difficult, the person, who asked not to be identified, said.
Some industry executives cautioned that Thornton’s goal of shedding all but the most desirable assets is more easily said than done. He might agree with that.
“Execution is 98 per cent of life,” Thornton said at his town hall meeting. “It’s an easy thing to say but it’s true.”
The whole industry gets itself into a bad habit It’s kind of an echo chamber, and they encourage each other towards what I would call bad behaviour. They don’t see it that way, but I see it that way.