Editorial: Barrick hints at Munk’s retirement

It seems Peter Munk’s days at the helm of Barrick Gold might actually be coming to an end.

In a regulatory filing related to the company’s current US$3-billion equity raise, Barrick said it is working to address shareholder concerns and indicated that Munk will likely bow out before the next annual general meeting, scheduled for April.

“The board is addressing the issues that have been raised with our directors, which include modification of the company’s executive-compensation arrangements and the rejuvenation of the board through a combination of departures from the board, the addition of independent directors and a succession in the chairman role at the company, consistent with Mr. Munk’s desire to retire,” the filing said. “The company’s intention is to update the market before year-end on these initiatives, with governance changes expected to take effect in conjunction with Barrick’s next annual meeting.”

These issues have indeed been raised. In the last year Barrick shareholders have staged revolts, written letters, released independent analytical critiques and loudly lamented the state of corporate governance at the company. Their key concerns: the number of independent board members and Munk’s role.

Munk, who turned 86 on Nov. 8, has driven Barrick’s agenda since founding the now-giant gold producer in 1983. A stubborn, shrewd businessman, in just over two decades Munk grew Barrick from a small junior into the world’s largest gold producer. He closed many gutsy acquisitions, most of which worked out well, and his bold hedging strategy carried Barrick relatively unscathed through gold’s dark days at the turn of the millennium.

Of late, however, several major missteps at Barrick have tarnished Munk’s reputation. The company’s biggest development project, Pascua-Lama, is now suspended, following Chilean court orders and capital cost overruns in the billions. And Barrick is trying to fill that US$3-billion financing to bolster a balance sheet dragged down by the massive debt incurred to buy copper company Equinox Minerals, whose Lumwana mine in Zambia has consistently failed to live up to Barrick’s  expectations.

Reality diverged from the grand plans at both Pascua-Lama and Lumwana, and Barrick was forced to write down the value of the assets. In last year’s second quarter impairment charges totalled US$9 billion, forcing the company to report the second biggest quarterly loss in Canadian history.

Already displeased with these developments, investors revolted when Barrick then granted John Thornton, now co-chairman, an US$11.9-million signing bonus. At the last AGM 85% of shareholders voted against the company’s executive-compensation resolution — a non-binding vote that highlighted investor discontent.

As Barrick’s leader, Munk became a lightning rod for this investor dissent. Calls grew for him to step down and for Barrick to reassess its board of directors.

This is now happening, and it would be easy to think that Munk is retiring because of all the pressure — but that would contradict everything the market has come to expect from the fiery Hungarian immigrant. It seems more likely that Munk is ready to step down, because he has fixed most of his recent mistakes.

Pascua-Lama is suspended and therefore will stop costing the company a billion dollars a year, at least until the project’s litany of problems are resolved. Higher-cost operations have been sold and flagship mines made more efficient, including Lumwana. The current financing will rebalance Barrick’s finances. And Munk’s successor, Thornton, has been acting co-chairman for more than a year, which is long enough to learn the ropes and ensure a smooth transition.

Despite these accomplishments, the market will always have questions for the world’s biggest gold producer. At the moment those questions are centered on the ongoing financing. Rumours are flying that the underwriting banks are struggling to sell the shares, even at a 5% discount to the market, where Barrick is trading at its lowest level in two decades.

But whether Peter Munk remains at the helm or not, much of the credit of building Barrick Gold goes to this man with a true golden touch — and that is priceless.