By Allison Martell and Euan Rocha
Dec 4 Barrick Gold Corp, under fire for missteps in a tough market, started to address investor demands for a more independent board on Wednesday, by replacing two directors close to its departing founder with a pair of mining industry experts.
Incoming chairman John Thornton said he may look at hedging Barrick's exposure to the price of gold and made it clear that over the long term, the world's biggest gold producer, could diversify further into other metals.
As widely expected, Barrick confirmed that Thornton will replace 86-year-old chairman and founder Peter Munk this spring. Two other directors will also leave, and Barrick nominated four new independent directors.
"Slowly, Barrick has been ticking off the boxes as it tries to turn this big supertanker around," said Barrick shareholder John Ing, president of Maison Placements Canada. "They have been very successful as far as addressing a lot of the problems. This is quite positive."
Barrick's shares have fared worse than many of its hard-hit peers, and are languishing near 21-year lows, weighed down by cost overruns at its now mothballed Pascua-Lama gold silver project in the Andes and its pricey takeover of Africa-focused copper miner Equinox in 2011.
The Toronto-based company has been under shareholder pressure to add more mining expertise to its board, and overhaul its executive pay system.
Its four new board nominees are: veteran Canadian money manager Ned Goodman, property development executive Nancy Lockhart, former university president David Naylor and Ernie Thrasher, founder of closely held U.S. metallurgical coal exporter Xcoal Energy & Resources.
"Ned Goodman and Ernie Thrasher bring some mining expertise to the board, which wasn't there," said Michael Sprung, president of Sprung Investment Management, another shareholder.
Former Canadian prime minister Brian Mulroney and retired lawyer Howard Beck, both long-term directors, will not stand for re-election at the next annual meeting.
Barrick, which had been promising changes at the board for several months, also named former De Beers executive James Gowans as its next chief operating officer.
The Toronto-based miner has been without a permanent COO since earlier this year, when Igor Gonzales stepped down.
THORNTON TALKS HEDGES, COPPER
Speaking to reporters at Barrick's headquarters, Thornton said he would look seriously at hedging.
Barrick unwound its gold hedges in 2009, raising more than $5 billion so it could benefit as the price of gold rose. Some investors argue that full exposure to the gold price is the only reason to buy mining stocks, instead of physical gold.
But Thornton does not see Barrick as just a gold miner, a view championed by Munk, who took Barrick into copper with the Equinox deal.
"We are distinctly positioned over the next decade or two, if we can execute, to take what's been built and not only extend it as the world's leading gold miner, but also to take a very serious look at copper, which we are in and possibly minerals beyond that, too," said Thornton.
Barrick also said it will announce a new executive compensation plan at the annual meeting "which will align fully with the principle of pay-for-performance."
Ahead of the last annual meeting, several Canadian pension funds opposed Thornton's $11.9 million signing bonus, and shareholders voted down a non-binding resolution on executive pay. Proxy advisory firm Glass Lewis advised clients to withhold votes from three directors.
Despite Barrick's repeated assurances that it would address investor concerns, Quebec's pension fund - one of the company's most vocal critics - recently sold 95 percent of its holdings in Barrick.
A November securities filing shows that the Caisse de depot et placement du Quebec sold 2.67 million Barrick shares in the last quarter, leaving it with holdings of only about 148,000 shares in the company. The fund did not provide any detail around the reason for the move.
"We're encouraged by the steps the company seems to be taking to enhance the role of independent directors," Caisse spokesman Maxime Chagnon said. "We look forward to meeting with the company to better understand these and the further steps they will be taking to improve the governance of the company."
TURNING TO CHINA
Thornton, former Goldman Sachs second-in-command, was brought on in part for his exceptional connections in deep-pocketed China. Observers say he could shore up Barrick by allying it with powerful investors in China.
But last month's $3 billion public offering proved a tough sell, and sources familiar with the matter told Reuters that a recent filing signaling Munk's likely departure had been intended to win over reluctant investors.
Sources say Munk pushed hard for the Equinox deal, even as his management team warned against it, as he sought to transform Barrick into a big diversified miner in the mold of BHP Billiton Ltd.
The strategy could still pay off, but it has proven unpopular with many investors.
In an interview published on the Globe and Mail website on Wednesday, Munk said he had made a mistake: "We bought Equinox to increase our copper. And that was my first major mistake - entirely attributed to hubris."