TORONTO Aug 21 Peter Munk has long driven the
agenda for Barrick Gold Corp, the company he formed in
1983 and built into the world's largest gold producer, but
recent missteps have raised questions about the leadership of a
man once seen as a visionary in the industry.
Munk, who owns a stake of less than a quarter of a percent
in the company, still steers Barrick's strategy from his
position as chairman, and he is now attempting to shore up the
miner's position. But some investors, seizing on what they view
as misguided decisions and problems at several mines, are
questioning both the company's direction, and Munk's role.
In the last two years, gold miners across the globe have
been stung by falling bullion prices and a surge in costs.
Barrick has fared worse than its rivals, outlining about $13
billion in writedowns this year alone.
Its share price is down nearly 65 percent in two years,
outpacing a 50 percent drop in the NYSE Arca Gold Bugs Index
, and a 26 percent drop in the price of spot gold.
While environmental woes at its Pascua-Lama gold-mining
project, high in the Andes, have been the biggest drag on
Barrick's share price, investors have taken the most issue with
its disappointing push into copper and with a proposal to give
Munk's heir apparent, co-chairman John Thornton, an unusually
large, $11.9 million signing bonus.
In interviews with Reuters, five Barrick insiders said Munk
himself played a pivotal role in both these decisions.
Neither Munk nor Thornton would comment for this story, and
Barrick declined to comment on Munk's role in the decisions.
But the high-level insiders, who asked not to be named as
they are not authorized to discuss such matters with media,
describe a company where Munk - an entrepreneur, real estate
mogul and avid skier - has a powerful influence in every major
"The level of deference shown to Peter Munk within Barrick
and its boardroom is surprising," said one source familiar with
Barrick's boardroom discussions.
Only seven of Barrick's 13 directors are independent, a
ratio that Barrick says meets New York Stock Exchange rules. But
proxy advisory firm Glass Lewis says the board lacks two-thirds
independence - a best practice for big, widely held companies.
"It would be nice if we could get a feeling that the board
of directors is acting for all shareholders, because there is a
feeling, I think, that we are dealing with a little bit of a
fiefdom," said Caesar Bryan, a portfolio manager at Gabelli,
which owns some 2.9 million shares in Barrick Gold. "The whole
corporate governance and board situation is a little
GAMBLE ON COPPER
The insiders all praised Munk, who was born in Hungary and
escaped the Nazis as a teenager, for his achievement in building
Barrick and the tens of millions of dollars he has donated for
healthcare and education in Toronto, where the company is based.
However, they criticized some of his more recent decisions,
especially Barrick's C$7.3 billion ($7.03 billion) takeover of
Africa-focused copper miner Equinox in 2011.
Three of the sources said that deal stretched Barrick just
as it was developing the huge Pascua-Lama project on the border
of Argentina and Chile, and the Pueblo Viejo gold-mining project
in the Dominican Republic.
The Equinox takeover triggered the initial slide in
Barrick's share price. Many investors were disenchanted: Stocks
of gold miners typically attract higher multiples than those of
base metal miners, and Barrick has for years marketed itself as
the ideal vehicle for gold bugs.
But three of the sources said Munk's push for Equinox came
as no surprise, given that the he had long sought to transform
Barrick into a big diversified miner in the mold of Rio Tinto
Ltd or BHP Billiton Ltd.
In particular, Munk has wanted to boost Barrick's exposure
to copper, said the insiders, adding that his itch for copper
dated back to the late 1990s, when he pushed management several
times to look at U.S. mining giant Freeport McMoRan Copper &
Gold Inc - an initiative code-named Project Orange.
But successive management teams repeatedly steered Munk away
from a bid and Freeport became too big a target after it bought
Phelps Dodge for $25.9 billion in 2007.
Refocusing on gold, Barrick then twice reached deals to buy
No. 2 gold miner, Newmont Mining, first in 2008 and
later in 2010, the sources said. Each time Munk scrapped the
deal late in the game, largely due to differences around how the
combined entity would be led.
At other times, the sources said, Munk pushed management to
look at the likes of Canadian diversified miner Teck Resources
, and Potash Corp, the world's top fertilizer
maker. Neither deal panned out.
Barrick declined to comment on the deals it has explored, as
did spokesmen for Freeport, Newmont, Teck and Potash Corp.
WARNING ON EQUINOX
When Equinox came on the block, four insiders said Munk
seized on the deal as a step toward his goal of diversification.
At a time when several copper miners were up for sale, Barrick
outbid a Chinese state-backed entity to take over Equinox.
Barrick's management team attempted to warn Munk against
buying Equinox, noting that Barrick had spent months trying to
reduce risk in Africa by spinning its mines there into a
separate operation called African Barrick Gold PLC, the
sources said. The board approval of the deal is illustrative of
Munk's sway in the boardroom, they said.
Two sources said the final board approval came during a
20-minute conference call with minimal discussion. Asked for
comment, Barrick said its board discussed the deal extensively
in the weeks before the decision.
Yet the deal quickly raised concerns among investors,
starting with the price Barrick shelled out for Equinox.
"Outbidding the Chinese on a copper asset in Africa is your
first sign that you've struck a bad deal," said one insider, who
noted that Chinese companies are very comfortable operating in
Africa and own a wide array of projects across the continent.
The price of copper has fallen 23 percent since the deal,
and the transaction has not lived up to its billing. Barrick has
halted an expansion at the Lumwana copper mine in Zambia - the
crown jewel of the Equinox portfolio - and delayed the Saudi
Arabia Jabal Sayid copper project, also acquired via the deal.
To be sure, Munk's gamble may still pay off in the long run,
given looming supply issues as China's and other emerging
"The Earth's endowment with high grade copper deposits is
finite," says Bernstein Research analyst Paul Gait. "It is only
a question of when, not if, that limitation leads to higher real
Aaron Regent, Barrick's chief executive at the time of the
Equinox deal, was replaced by Jamie Sokalsky in June 2012.
Regent declined an interview request.
GETTING BACK ON TRACK
Barrick has lately begun to right the ship, say two sources,
noting that Thornton, formerly a well-regarded Goldman Sachs
executive, is taking a more hands-on role as Barrick's
co-chairman. Recently he traveled with management to Argentina
before Barrick outlined a decision to slow work at the expensive
Pascua-Lama project, a move that will help the company preserve
capital over the next few years.
Ahead of Barrick's annual meeting in April, proxy advisory
firm Glass Lewis told investors not to vote for three directors:
Anthony Munk, Peter Munk's son and a board member for 17 years;
William Birchall, a member for 29 years; and former Canadian
Prime Minister Brian Mulroney, who has been a board member since
The firm advised against Anthony Munk and Birchall, saying
it was concerned about the level of board independence, and it
argued that Mulroney currently sits on too many boards. All
three were elected, but shareholders voted against Barrick's
non-binding proposal on executive compensation, in particular an
$11.9 million signing bonus that was paid to Thornton.
That revolt was led by some of Canada's top pension funds, a
group that rarely goes public with their disapproval, and 85
percent of the vote was cast against Barrick on the proposal.
Representatives of the pension funds declined to comment.
But a source at one of the funds said Barrick has since
vowed to add three new independent members to its board. The new
nominees are likely to have experience in the mining sector to
tackle a lack of sector expertise on its board, said the source.
Barrick declined to comment on any plans to add independent