Barrick Gold founder Peter Munk’s final play – by by Jonathon Gatehouse (MacLean’s Magazine – October 1, 2013)

He’s fending off a shareholder revolt and fighting for a legacy

Back in 1996, Peter Munk sat down with one of his biographers and laid out his 34 “golden rules” for success in business. Some of them offer practical advice: “Always leave something on the table in a public issue. If you push for the last penny, it may hurt you the next time around.” While others border on fortune-cookie wisdom: “Time is short.

If you want to achieve much, you’ve got to run.” Taken all together, the list seems less like a coherent corporate philosophy than an odd mélange of exhortations to take risks and calls for fiscal prudence. But there was also an element of prophecy—at least when it comes to the current fortunes of the celebrated 85-year-old entrepreneur. “If you want to dream big, expect big problems,” states rule 30. “Big dreams challenge the fates.”

From its humble beginnings as an oil and gas play in 1983, Munk’s Toronto-headquartered Barrick Gold Corporation has grown into the world’s largest gold producer, with 24 mines operating on four continents, five more in development and ore reserves estimated at more than 140 million ounces. Characterized by the relentless pace and sheer scale of its acquisitions, including a 2011 foray into copper with the $7.66-billion takeover of Equinox Minerals Ltd., the company had been a darling of investors for more than two decades. At its peak in 2011, Barrick was trading at $53 a share and had a market capitalization of $54 billion.

Now, after months of declining gold prices, a second-quarter loss of $8.6 billion and writedowns on its projects that total more than $13 billion so far in 2013, the stock is trading around the $19 mark, and the company is worth closer to $20 billion. Stumbling under $11.6 billion in debt, Barrick has slashed its dividend by 75 per cent and is vowing to cut costs and its workforce.

It recently struck deals to sell its investment in Alberta oil and gas—at a $500-million loss—and three underperforming Australian gold mines for $300 million. But the moves are proving to be far too little and way too late to placate angry shareholders. They first showed their displeasure at the annual general meeting last April, voting 85 per cent against a $17-million pay package, including an $11.9-million signing bonus for John Thornton, who now co-chairs the board with Munk.

(Aaron Regent, Barrick’s CEO, was given a $12-million kiss-off in June 2012 after five years of service and replaced by Jamie Sokalsky, formerly the company CFO.) And last week, word leaked out of efforts by activist funds in the U.S. and Europe to bring together the company’s largest investors to force a purge of the board, and finally usher Munk—who has been promising to disengage for years, and now owns just 0.2 per cent of the shares—out the door.

“I think the fundamental problem is that Barrick is really run like it’s Munk’s personal company,” says Mike Morris, a fund manager at Two Fish Management LLC, the Indianapolis firm that is leading the charge. “He wants a legacy. But when you don’t own any shares, you don’t really care.” Morris has been circulating a 72-page study he prepared on Barrick’s performance versus its major rivals.

He points to the $292 million in compensation paid to the company’s executives and board members between 2007 and 2012—$93 million in 2012 alone, a year when returns dipped 21 per cent—as far surpassing industry standards. (Munk, who saw his base salary as co-chairman rise 67 per cent to $2.5 million, took home a total of $4.3 million in 2012. Former prime minister Brian Mulroney, the board’s senior adviser, global affairs, appointed by Munk just after he left office in 1993, received $2.5 million.)

And even over the unprecedented 12-year market run on gold, which came to a screeching halt this past April, Morris argues that Barrick underperformed, offering a 10-year annualized return of two per cent versus an average of 8.7 per cent among its 10 biggest peers. All the while, new stock issues to help finance acquisitions have outstripped dividends, with shareholders pumping in $2.3 billion more than they have received back over the past five years. “This has nothing to do with low gold prices,” says Morris. “It’s a company that has delivered no cash to shareholders for a decade.”

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