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It was spring 2011, and a frenzy had gripped the mining industry.
As China consumed ever-growing amounts of copper, gold, nickel and other metals, prices were breaking records and mining companies were launching multibillion-dollar deals. The mantra in the resource sector was “growth, growth, growth.”
Barrick Gold Corp. was readying its arsenal. With gold prices flying high, the company earned a record $3.3-billion (U.S.) in 2010. The gold producer had the strongest credit rating among its peers, and everywhere Barrick chairman Peter Munk turned, brokers were offering to lend the company billions of dollars at low financing rates.
At the time, the large Lumwana copper property in Zambia owned by Toronto-listed Equinox Minerals Ltd. was a coveted prize for industry’s big base metals players. As a gold company, Barrick was not seen as a likely bidder.
But when China’s Minmetals Resources Ltd. offered $6.3-billion (Canadian) to acquire Equinox, the situation proved too tempting for Mr. Munk.
Barrick launched a blowout bid of $7.3-billion in cash for Equinox in April, 2011, a staggering amount that clinched the deal.
It didn’t go well.
Early this year Barrick announced a $3.8-billion (U.S.) writedown largely tied to Equinox, an acknowledgment that it far overpaid for the company.
Now Barrick is a wounded company, its former strength sapped by poor acquisitions and mine developments gone horribly wrong. China’s growth has cooled and the metal mania has long faded. Barrick has suffered big losses, its credit rating has been slashed and its once-pristine balance sheet is heavy with debt. Its stock price, at $16.72 (Canadian) Wednesday, has retreated to levels seen 20 years ago.
Mr. Munk looks back at the Equinox era, when companies were madly acquiring rivals with the belief that metal prices would endlessly soar, and puts the blame squarely on himself.
“We bought Equinox to increase our copper. And that was my first major mistake – entirely attributed to hubris,” Mr. Munk said in an exclusive interview with The Globe and Mail.
“The very fact that I accepted that stupidity … that I kept on believing, because everyone kept on saying gold goes up. I should have known,” he said.
Barrick announced Wednesday that Mr. Munk will hand over the chairmanship of the company he founded in 1983 to former Goldman Sachs president John Thornton at the next annual meeting of shareholders.
The company also shook up its board, which has been criticized for not exercising enough independence from Mr. Munk. Long-standing board members Brian Mulroney, a former prime minister of Canada, and Howard Beck, a lawyer who has served as a director since Barrick’s inception, will also stand down at the annual meeting. The board nominated four new members, including Bay Street veteran Ned Goodman.
The timing of his exit is tough for Mr. Munk, who built Barrick up from nothing into the world’s largest gold producer, a stunning achievement in a country that features few global industry leaders.
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