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http://watch.bnn.ca/#clip1071973
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Excerpt from “Boardroom Games: You’re Fired!” – Mining Boards: Local and Foreign Adventures
Sudbury-born Peter A. Crossgrove and another partner invested in Interior Door, a private company that became Masonite, a public company sold to KKR for $3.2 billion in 2004. Peter’s mining and boardroom experiences are indelibly etched real-life scenarios—humorous and thought provoking. Having served on close to seventy mining, corporate, and not-for-profit boards, armed with a sense of humour, dignity, dogged determination, and humility, Peter has challenged boardroom antics and relationship intricacies with the skill-sets and values he was raised with.
Early Barrick Days
In the early Barrick days, Barrick Gold was originally called American Barrick so it would be listed higher in the newspaper stock pages and easier to find by investors. The original company was United Sysco and the CEO was Bob Fasken. Bob’s COO was Bob Smith. I knew them both well. I used to fly up with them in the company’s Turbo Beaver to Griffith Island, an island off Wiarton in Georgian Bay, to shoot pheasant and chucker partridge. We were members of the Griffith Island Club in Georgian Bay.
Bob Smith had been a miner all his life having been raised in the mining community of Cobalt, northern Ontario; whereas Bob Fasken was an investor. The public company United Sysco had a couple of small gold mines in northern Ontario and northern Quebec. The mine manager was Louis Dionne. At the time the price of gold was about $300.00 per ounce.
Unfortunately Bob Fasken had some real estate investments in Mississauga that had become illiquid. I ran into both of them in the Royal Bank tower after they had just been told by the Royal Bank to find a buyer for the mining company, since they were running out of money. They asked me if I knew a buyer and I said I would approach David Ferguson, CEO of Starlaw—the McConnell family holding company. David quickly said no because they didn’t know anything about the business.
In the meantime, both Peter Munk and David Gilmore, who were electrical engineering graduates from the University of Toronto, had previously started a public company in Canada called Clairtone, which without a doubt made the finest sound systems in the world at the time.
They decided to expand their manufacturing facilities in the Maritimes with a government loan, and after they started to build the plant, the government changed the terms of the deal; the economics did not work and I believe the company went bankrupt.
That’s when they headed to Australia to launch their hotel chain—a series of small hotels, which they had successfully built up in Australia, Fiji, and Papua New Guinea. When Bob Smith and Bob Fasken were looking for a buyer of the mining company, Peter Munk, David Gilmore, and their accountant Bill Birchall had just returned to Canada from Australia, where they had sold the small hotel chain.
Peter, David, and Bill were looking for something to invest in. I think they originally invested in some oil and gas deals with Gary Last (professional engineer, vice president of production, and consultant in the oil industry), which did not work out too well. Then they heard from the Royal Bank that a small mining company might be available. They did some homework and saw that the stock price of gold mining companies was quite lucrative; for example, at the time Campbell Red Lake’s stock was selling for twenty-eight times its earnings. So I believe with some initial financial help of Adnan Kashoggi, Saudi Arabian businessman, they did the deal with the Royal Bank. Bob Fasken left and Chief Operating Officer Bob Smith remained.
From Entrepreneurial to Professional Directors
Initially when I went on the Barrick board, they had people like David Gilmore, one of the co-founders. David is certainly entrepreneurial; he founded Fiji Water as well. Angus McNaughton was of course a brilliant guy who had retired as CEO of Genstar, a huge company he and his partner created. These chaps started to drop off the Barrick board, including Joe Rotman, who everybody knows is a very strong and independent businessman. I probably should have dropped off—but I didn’t.
The board was changing dynamics, towards what I would refer to as being prolific with professional directors who don’t necessarily understand the business. Most of the directors of Barrick have never been to a mine, and if they did, they wouldn’t know what the hell they were looking at. I felt very strongly about this issue and said so.
The Positive Impact of Bob Smith
Bob Smith, the Chief Operating Officer and Director of Barrick, convinced me to stay on the board. Bob knew how to build a mine. He was a wonderful person and very experienced operator and mining engineer. He was really the one who built the company and figured out how to mine Goldstrike in Nevada. This was a very difficult mine to operate because of water and potential environmental problems. It has become one of the largest gold mines ever developed.
Bob wanted to make Barrick an international company. At the time I joined them as a director, they were only in Canada and Nevada. He wanted to start expanding the company outside of North America to South America, over to Africa, Australia, and elsewhere. However, the opportunity in Tanzania came first, but the government kept changing the tax base and it was a difficult deal to put together. There was no infrastructure and it was hard to train a workforce because many were sick with malaria and AIDs. Barrick had to build and operate a hospital and even so, many trained employees missed a lot of work time.
I knew a lot about Africa through my work with CARE, and I knew that it’s extremely difficult to do work over there long term. The people are so poor and many of the governments are so corrupt. The company made some money in Tanzania. Bob worked very hard at it. Initially they had trouble with the recoveries of gold out of the ore. Another problem was that someone was actually stealing shiploads of concentrate.
It was a great tragedy that Bob had to retire early due to health issues and died shortly thereafter. He had Peter’s ear and the respect of the board. He was also focused on building the best gold company—not just the biggest.
The Bre-X Mining Scam
And then there might be the occasion to come up against a scam. Bre-X was probably the biggest mining scam in Canadian history and perhaps in all mining history between 1995 and 1996. Investors lost billions of dollars. They invested in a gold play in Indonesia and there was no gold.
It started as a penny stock out of a stock promoter’s office in Calgary, Alberta. It grew from pennies per share to several dollars per share within several weeks. The results appeared to be so good that all the majors were looking at it like Barrick, Placer Dome, Inco (now Vale), Newmont, and Freeport-McMoRan Copper and Gold Inc. Several companies were lining up with various members of the Suharto Indonesian presidential family because it appeared you had to have a political in to get a deal done.
Barrick looked at it and made a bid in the billions of dollars. Everything was subject to due diligence of course. I was the only board member to vote against it. The reason: the diamond drilling was as I recall twentyfive metres, and they were getting the exact same results at the same depths on every hole. In my experience, this was not possible.
Bob Smith at Barrick asked me to go and visit John Lydall, one of the best-known and respected analysts on the street who worked for First Marathon, and who had just returned from the property. I went over to see him; he showed me the maps and said he had seen the diamond drill core. I said that I had heard they had been sending their ground-up drill core to Australia for assaying (the process of determining the quality or content of a metal or ore), and that they thought the gold in the sample was placer gold (it had been panned from a river or creek).
The difference is that the placer gold is rounded off from the water and the diamond drill core samples have sharp edges. I had seen pickle bottles full of placer gold in Papua New Guinea for sale in grocery stores. Papua New Guinea is the other side of the island of Indonesia. John said he had heard that there had been some trouble with an Australian lab, but a reputable lab in Canada was now doing the assays.
I followed up with Bob to report that I was not convinced. About ten days later, coincidentally I landed in Jakarta on CARE business and I saw the Barrick airplane on the tarmac. And about two weeks later, we were having a Barrick board meeting in London at the Claridges Hotel, since Peter Munk was over at his home in Switzerland for most of the winter.
We were told that our geologists were to go to the property in Indonesia to do due diligence. When they arrived in Jakarta they were not allowed to go to the Bre-X property. This explained the plane I had seen. We decided not to bid any further and just drop out of the bidding because we did not want to offend the government in case we were wrong.
After the board meeting, Peter Munk asked me if I was staying for lunch. I said no, and that I was heading to Charlotte, North Carolina for a United Dominion board meeting there. He said I had to come to lunch because King Hussein of Jordan’s sister was coming to lunch only because I was there in order to see if CARE would launch a program in Jordan. She was a lovely lady who looked exactly like her brother. I put her in touch with the right people and I was flown to Charlotte in Barrick’s jet and able to make the meeting.
The bidders dropped away and the Government of Indonesia forced Freeport-McMoRan to make a bid subject to due diligence as they had a large copper and gold mine in Indonesia. They drilled a few holes parallel to the Bre-X holes and found nothing. It was a hoax.
A few days before this, I had been walking down Richmond Street in Toronto near the old Hy’s Steakhouse and Cocktail Bar, and I ran into David Weldon and his son. David ran a large brokerage house and his son was a broker. David was on the hospital board with me. His father Colonel Weldon was Chancellor of the University of Western Ontario. They were a London family and very generous supporters of Western.
He asked me what I thought of Bre-X since they and a lot of clients were in it. I told him in my view that it was a pile of crap and I explained why. I ran into him about a month later and he thanked me, because they had been able to get out of it at a profit. It became a penny stock (a very small company with highly illiquid shares involving a high risk of loss generally trading below five US dollars per share), and then went bankrupt in 1997.
Over time and especially in the mining industry, you come to discern what is good and what might seem dubious. I guess I have been lucky because of my extensive experience and background in mining. It always pays to do your due diligence and not rush head long into the costly and uninformed excitement that others may generate.
International Geopolitical Risks, Global Management –Corporate Structure, Operations and Strategic Challenges
Barrick tried to sell African Barrick to the Chinese; however, after doing their due diligence, the Chinese withdrew their offer. That’s about all. Billions of dollars have been tied up for years; plus, a lot of good people were sent over there and left the company because they felt stranded. I understand that the Chief Financial Officer has recently left African Barrick, along with the chairman of the board, when they were advised of the results of the Chinese due diligence. The new Chairman is Kelvin Dushnisky, a senior VP. He is a lawyer and in my view, he is probably the best person to handle Government relations and community social responsibility in mining. He is extremely bright, but very busy on Barrick CSR problems around the world. I do not think he has the time or experience to run a $3 billion company.
Barrick would be much better suited if they had an independent member of their board who knew something about mining. But of course, they do not. Much in the same way as I represented Placer Dome on the Board of Placer Pacific, when I was an independent member of the Placer Dome board. Barrick have $3 billion invested in African Barrick, but no one from the Barrick board is on the African board.