Barrick Gold Corporation

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

KLOSTERS, SWITZERLAND – On a chilly evening in early March, Peter Munk picks me up from my hotel in his tiny Fiat Punto, manual transmission, that he drives himself. His wife Melanie is stuffed in the back and our destination is the local schnitzel restaurant, where the Munks are treated like anyone else in Klosters, the Swiss ski village near Davos.

What a change. The last time I spent more than a few minutes with Mr. Munk was in 2008, in Montenegro’s glorious Bay of Kotor, the Mediterranean’s only fjord. We were on his chartered superyacht, the 50-metre Te Manu, a nautical pleasure palace with a crew of 11 that would have made any oligarch proud.

Has Mr. Munk, the founder, co-chairman and former chief executive officer of Barrick Gold Corp., fallen on hard times since then? Yes and no.

At $27-billion, Barrick is worth less than half of its peak in 2011, just before the gold price collapsed and the financial horror of the company’s now-suspended Pascua-Lama mining project in the Andes was exposed. Mr. Munk’s wealth has declined along with the share price (although he owns only 2.1 million common shares), but certainly not to the point where he is flying economy and forgoing oysters and champagne.

Instead, the Fiat represents the new, simpler life of the Hungarian emigrant to Canada who turned a motley collection of gold assets into the world’s mightiest gold producer. Mr. Munk will leave the Barrick board at the company’s annual shareholders’ meeting in Toronto on April 30, after which John Thornton will go from co-chairman to chairman.

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CEO Jamie Sokalsky has overseen ‘most radical change’ in gold miner’s history

Jamie Sokalsky is the first to admit he’s not the flashiest guy in the rough and tumble gold mining game. “I’m an accountant, my wife is an accountant, my oldest daughter is an accountant and my youngest daughter is studying to be an accountant,” says the chief executive of Barrick Gold Corp. with a chuckle.

While the mild-mannered 56-year-old likes to downplay his management style as rather dull, Sokalsky has ironically overseen the wildest times in the history of the world’s largest gold miner after taking the helm nearly two years ago.

“Barrick is quite a changed company in the last couple years. We’ve radically changed how we’re running it,” he says in his first sit-down interview since his surprise promotion to CEO in June, 2012.

Indeed, the bullion behemoth – whose mantra for years had been ‘bigger is better’ and growth at all costs – is almost a shadow of itself, having gone from 27 mines across the world to 19 in the last six months alone as it shed almost $1 billion of money-losing assets amid the plummeting gold price.

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The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

The gold industry’s growth binge is over, and mining companies have sobered up. After a dismal year in which bullion and mining stocks dropped sharply in value, gold companies are slowly regaining their footing and learning to live with the lower precious metal price.

Canadian gold companies, from heavyweights Barrick Gold Corp., Goldcorp Inc. and Kinross Gold Corp. to the smaller Agnico Eagle Mines Ltd., slashed their bullion reserves and collectively recorded $17-billion (U.S.) in impairment charges in 2013.

Barrick chief executive Jamie Sokalsky, who closed the book Thursday on a $10.4-billion net loss for the year, called it the most difficult year in the company’s 30-year old history and said it has gone through a “sea change.” The world’s biggest gold producer epitomized the industry’s mantra of “growth, growth, growth, growth” during the commodity boom. But in the past few months it has overhauled its board, sold expensive mines, put the brakes on a key project and paid down some of its debt while trying to calm shareholders irate with how the company was governed.

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The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

After years of costly mistakes, the new chief executives of Barrick Gold Corp. and Kinross Gold Corp. have ushered in an era of austerity in the precious metal sector.

The results of their labour will be on display when Canadian mining companies report fourth-quarter earnings this week. Investors are already expecting gold producers to reduce their bullion reserves, write down more assets and record lower profits.

But the bad news may soon be ending with companies adjusting to the lower gold price. “The worst is over,” said John Ing, president of investment firm Maison Placements Canada Inc. in Toronto. That doesn’t mean the picture will be pretty this quarter.

Barrick CEO Jamie Sokalsky told investors that the company will use a $1,100 (U.S.) price to calculate its unmined gold. That is down sharply from the $1,500 price assumption used to calculate last year’s reserves.

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The bankers behind Barrick Gold Corp.’s US$3-billion equity offering faced a tall order: sell the most shares ever issued in a Canadian bought deal; do it in a tough gold market; and do it for a company that was struggling to regain investor confidence after a series of writedowns and strategic blunders.

It was clear by last summer that Barrick, the world’s biggest gold producer, should do something about its over-levered balance sheet. Gold prices were down sharply from their highs in 2011, and analysts were warning the company could have liquidity problems if prices dropped below US$1,200 an ounce for a prolonged period.

Throughout this period, Barrick’s management was in touch with bankers from RBC Capital Markets on a potential plan to issue equity in order to retire debt. That Barrick turned to RBC was no surprise: the two firms have a longstanding relationship that dates back to the gold miner’s earliest days in the mid-1980s.

“They have done business with others. But if you look at who they have done business with over a long period of time, we’ve been privileged to have supported Barrick on a number of their milestone transactions,” said Jamie Anderson, deputy chairman of RBC Capital Markets.

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