Barrick Gold's invidious merger with Randgold

Published by MAC on 2019-01-11
Source: RAID, Toronto Globe and Mail

London Calling asks if new CEO Bristow is up to the mark

Mark Bristow’s Headache as New CEO of Barrick Gold

RAID

2 January 2019

Mark Bristow, the FTSE 100’s longest-serving CEO, is set to begin his new
job today. With Bristow’s Randgold Resources plc having completed its $6.1
billion merger with Canada’s mining giant Barrick Gold Corp., he takes
charge of the world’s largest gold mining company, which will keep the
Barrick name. Yet for it to become the industry’s “new champion”, Bristow
must overcome significant challenges. Of these, one stands out as his
“biggest headache”: Acacia Mining plc.

Acacia, a UK-listed former Barrick Gold subsidiary that went public in
2010, remains majority-owned by Barrick, and its Tanzanian gold mines
account for roughly 12% of Barrick’s revenue. Yet corruption
investigations and serious human rights abuses at its main North Mara gold
mine, in northern Tanzania, dramatically undermine its performance and
legitimacy.

In 2015, Bristow walked away from an earlier joint venture with another
mining giant, AngloGold Ashanti, for a Ghanaian gold mine. Key for Bristow
was that the mine was “in conflict with everyone” and “did not have a
social license”. Proceeding with the Barrick merger suggests he believes
Acacia’s social license to operate is still recoverable. Whether he’s
right will say much about Bristow’s stewardship.

The corruption and human rights issues at the North Mara mine are
intertwined. In 2017 the Tanzanian government hit Acacia with a crippling
export ban on unprocessed metals and a $190 billion bill for tax evasion.
In October 2018, it charged Acacia’s former vice-president, three
Tanzanian subsidiaries and a subsidiary’s manager with corruption-related
offences dating as far back as 2008. The charges against Acacia’s
subsidiary North Mara Gold Mine Ltd (NMGM) allege it laundered over $370
million that were the proceeds of forgery and tax evasion.

The challenge facing Bristow goes deeper. Also filed in October 2018 are
corruption charges reportedly alleging that the North Mara mine, a current
and a former employee paid government officials over $1 million in bribes
to favour the mine’s expansion by undervaluing land, and removing and
“deal[ing] with errant villagers”. Some of the officials were also
charged. The charge sheet alleges that the North Mara mine even paid
bribes to prevent a costly relocation of a primary school.

The North Mara mine is not a defendant in the second set of charges and
those charged in both proceedings have pleaded not guilty.

How to manage these supposed “errant villagers” is key to understanding
Acacia’s current conundrum. Its North Mara mine has long been bedevilled
by reports of serious human rights abuses, including killings, sexual
violence and assault. A 2016 Tanzanian parliamentary inquiry received
reports of 65 killings and 270 people injured by police paid by Acacia’s
subsidiary to provide security. Between just 2014 and 2016, our
organization RAID, alongside MiningWatch Canada, documented at least 22
people killed and 69 injured by security forces at or near the mine, a
figure that likely only captures a portion of the total.

Acacia claims the incidence of violence has decreased. While that may be
true (in part because the mining has gone underground rather than in an
open pit) the problem of the company’s policy on the use of force by
police and mine security is far from resolved. Moreover, Acacia has failed
to institute an adequate grievance mechanism for those who have been
victims, leaving many destitute and angry towards the company.

Acacia, which confidentially settled a UK lawsuit in 2015 by North Mara
victims, denies liability for the abuses. It blames those scavenging on
the mine site for trespassing, justifying the use of force – which
includes severe beatings and killings – as necessary to defend company
property and personnel. Given the extreme violence perpetrated by the
mine’s security, these arguments are specious on their own terms.

There’s no dispute that local people live in impoverished circumstances,
nor that the mine was developed on what was their land. Yet the corruption
allegations, if true, suggest that Acacia is more responsible for the
former than previously known, and has achieved the latter through unlawful
means.

If true, Bristow’s not only taking on a company exposed to potential
liability for serious human rights abuses but also one that may have
cheated local people of their land.

Bristow will need to be decisive and quick to tackle these challenges.
Recent reports of an investigation into Acacia by the UK’s Serious Fraud
Office risks exposing Acacia further. Acacia has denied awareness of this
investigation.

Bristow has floated the idea of buying out Acacia, and his reconfigured
negotiating team reportedly agreed to pay Tanzania’s government $300
million toward a resolution on the tax dispute. But these steps alone
won’t restore Acacia’s social licence. Bristow will need to ensure Acacia
respects the rights of local communities and fairly compensates victims
for the wrongs done to begin curing the corruption and human rights
“headache” that awaits him on his first day.

 

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Barrick Gold veering away from Canadian roots after Randgold acquisition

NIALL MCGEE MINING REPORTER
RACHELLE YOUNGLAI

Toronto Globe and Mail

3 January 2019

The slow shift of power away from Barrick Gold Corp.’s Canadian head
office has moved into high gear, just days after it closed its deal with
African operator Randgold Resources Ltd.

The US$6-billion acquisition, which was announced in September and
completed Tuesday, has left Barrick with a hollowed-out head office,
almost no Canadian representation on the board and few Canadians in top
management positions.

Barrick’s retreat in Canada reflects a broader downsizing of Toronto as
a world mining capital, with fewer global players headquartered in the
city and dramatically less mining capital being raised on the Toronto
Stock Exchange. Barrick, the world’s largest gold producer, had been one
of the last great Canadian corporate mining champions left standing
after a wave of foreign takeovers of metals giants such as Inco and
Falconbridge. With a head office of about 500 employees, it played a
major role in Toronto’s financial scene.

But that Toronto office has been shrinking for years as Barrick went
through a series of restructuring moves led by John Thornton, its
U.S.-based executive chairman.

Pierre Lassonde, whose Franco Nevada Corp. has owned a royalty on
Barrick’s Goldstrike mine in Nevada since 1985, believes that Peter
Munk, Barrick’s late founder, would be aghast at seeing the company’s
fast-shrinking presence in Canada.

“I think Mr. Munk is going to roll over in his grave 10 times,” Mr.
Lassonde said. “Peter was Mr. Canada. He wore Canada on his sleeve. He
was so proud to be a Canadian.”

Not long after Barrick announced its purchase of Randgold, the company’s
new executive team dramatically scaled down its domestic footprint.

Only around 65 people work in Barrick’s head office now, compared with
150 as recently as September. A board overhaul announced Wednesday has
left only one Canadian director, Michael Evans, and he lives in New
York. Many of the company’s new executives came from Randgold and just
two of 14 upper management roles are held by Canadians.

Mr. Thornton, the executive chair, is American, South African Mark
Bristow is chief executive officer and another South African, Graham
Shuttleworth, is chief financial officer. The highest ranking Canadian
left is Kevin Thomson, who serves as senior executive vice-president of
strategic matters.

Soon, Barrick will likely not have any mines left in Canada either. The
company is planning to sell the Hemlo mine in Ontario, the only Canadian
operation in its portfolio.

“Don’t tell me in the Canadian mining industry there’s not great people
to run a company like Barrick,” Mr. Lassonde said, whose Franco-Nevada
is run entirely by Canadians.

A Hungarian immigrant, Mr. Munk founded Barrick in 1983 and grew it into
the biggest gold company in the world. Around the time Canadian
base-metal companies such as Inco and Falconbridge were being sold to
foreign buyers, he marched into the offices of The Globe and Mail and
demanded the newspaper draw attention to what he saw as the gutting of
Canada.

When Mr. Munk tried to merge Barrick with U.S. competitor Newmont Mining
in 2014, the deal was called off at the 11th hour amid a clash among
chairmen and Newmont’s plan to move Barrick’s head office to the United
States. That was a deal-breaker for Mr. Munk, who demanded it stay in
Toronto.

In November, when asked if he thought the lack of Canadian influence at
the top and its shrinking footprint in Canada was an issue people should
care about, Mr. Thornton said, “The single most important thing that
anyone should be focused on about any company is, is it healthy and
successful?

“The issue shouldn’t be what’s the nationality of the people running
anything in any world-leading company,” the Barrick executive chairman
said. “The issue should be are they doing a good job or are they not
doing a good job. That’s all.”

Mr. Thornton, who spent much of his career as an investment banker with
Goldman Sachs, lives in Palm Beach, Fla., only occasionally visiting
Toronto.

Mr. Bristow, the CEO, plans to spend much of his time abroad, visiting
the company’s various international mines. He doesn’t even like the term
“head office” and doesn’t really believe in them, he said. At Randgold,
Mr. Bristow, who was both the CEO and founder, was known for running a
highly efficient gold miner with little or no ties to any specific
country. Randgold’s head office in Jersey in the Channel Islands only
housed a handful of people.

But Mr. Lassonde says while he’s broadly in favour of Barrick’s new
decentralized management structure, there’s still a need for a vibrant
head office at any mining company, with the main decision-makers working
on site.

“The head office should be where the CEO is, where the chairman is and
where the CFO resides,” Mr. Lassonde said. “This is going to be a
phantom head office until the company is either sold and or dismantled
and then it’s going to disappear. It cannot stay like this.”

The cuts at Barrick’s head office will likely have broad knock-on
effects for Toronto’s financial ecosystem that will mean less work for
bankers, consultants and legal professionals. Under Mr. Munk, Barrick
regularly used RBC as one of its investment bankers. Although Barrick
tapped Canadian banks for some of its smaller asset sales in recent
years, the miner did not hire a domestic bank for the Randgold purchase.

Mark Selby, a former Inco executive and now president of junior nickel
miner RNC Minerals, said what’s happening at Barrick is part of a
retreat from mining in Canada. The retreat kicked off with the gutting
of the large base-metal companies in the mid-2000s and a shift of large
mining headquarters away from Toronto toward London, such as Rio Tinto’s
acquisition of Alcan.

“Before, Toronto made sense to be there because you had this cluster of
large companies, a cluster of capital providers and fund managers and
investment analysts who helped allocate that capital. Those have all
shrunk dramatically,” Mr. Selby said. “There is less of a need to be in
Toronto today."

Derek White, former executive with Billiton and now CEO of junior miner
Ascot Resources Ltd., called it “a bit of a setback to our ability to
remain as the centre for global gold companies.”

“It means that newer smaller companies will have to come together to
build up critical mass inside of Canada," he said. “If we want to be the
bigger players, some of our players are going to have to come together
to step up to the plate to make that happen.”
________________________________________________________

The gutting of Barrick Gold – it didn’t have to be this way

Eric Reguly

EUROPEAN BUREAU CHIEF
ROME

Toronto Globe and Mail

4 January 2019

Before I moved to Europe in 2007, I spent almost a decade in Toronto
writing about the eradication of Corporate Canada. Most big companies I
followed – Inco, Falconbridge, Alcan, Dofasco, Molson, Fairmont, Four
Seasons, among others – were flogged to foreigners, their head offices
downgraded to branch plants or eliminated. Were it not for ownership
restrictions, the banks also would have surrendered to the cult of
shareholder value – take the premium and hit the links. Canadians were
sellers, not builders.

If there was one company that was safe from the takeover onslaught, it
was Barrick Gold, I thought. I was both right and wrong, but more wrong.

At the time, Barrick was run by its founder, Peter Munk, the
Hungarian-born Canadian patriot who wanted to build the world’s biggest
gold miner. After achieving that goal, he mused about creating a
diversified resources giant, the equivalent of a BHP Billiton or Rio
Tinto under the Maple Leaf. But he was too late: By the time he was
ready to put the pieces together, in the middle part of the previous
decade, all his potential targets, including Inco, had been plucked
clean from the Toronto stock market.

Still, Barrick was the biggest of its kind and devoted to keeping its
head office in Toronto – Canada could lay claim to at least one
world-class mining company. But after Mr. Munk stepped down as chairman
in 2014, the Barrick narrative changed subtly, perhaps without Mr. Munk
even noticing it (he was fighting a losing battle to stay healthy and
died last March at the age of 90). John Thornton, the American former
Goldman Sachs president whom Mr. Munk had brought in to stabilize the
company after a series of damaging cost overruns, was quietly putting in
place a plan that would see Barrick lose its Canadian identity.

The head office was shrunk, Chinese mining partners were brought in and
Mr. Thornton, as the all-powerful executive chairman, launched a plan to
turn Barrick into a high-margin gold company. That mission took him to
Mark Bristow, the hard-charging South African chief executive of
London-listed Randgold Resources, the most successful gold company in
the industry, measured by shareholder returns. But how to snare him and
its high-performing African mines?

In the end, Barrick offered to buy the smaller Randgold for about
US$6-billion. At first, the takeover, which was announced in September
and completed this week, seemed like a big victory for Barrick – and for
Canada – one Mr. Munk would have approved of. Barrick wasn’t selling out
– Randgold was. The head office would remain in Toronto. Barrick would
retain its role as the top mining name on the Toronto bourse. After
years of retrenching, the new Barrick would expand again. What wasn’t to
like?

The reality was entirely different. We now know that, in effect, the
deal was a reverse takeover. As CEO, Mr. Bristow and his lieutenants are
now firmly in control of the enlarged company, including the board of
directors. A board overhaul left just one Canadian director, Michael
Evans, who lives in New York. Just two of the top 14 management roles
are held by Canadians.

The Toronto head office has been gutted. In September, it was home to
150 employees, down from about 500 before Mr. Thornton took over. Today,
only 65 remain and they work in non-front-line areas such as treasury
services, human resources and accounting. Given Mr. Bristow’s passion
for lean management structures and distaste for traditional head offices
– he’s a field guy – it’s likely the employee head count will come down
again. Imagine a company worth $30-billion with only a few dozen
employees in its head office. It’s already becoming a shell and may soon
exist only as a mail drop.

My own guess is that, in time, the new Barrick will replace the delisted
Randgold on the London Stock Exchange, eliminating the Toronto listing
and possibly the company’s Canadian domicile status, too. There is no
doubt Mr. Bristow would like to list Barrick in London. But changing the
company’s legal address might be potentially costly for tax reasons. A
London listing would complete Barrick’s de-Canadianization and the
hollowing out of the once thriving Canadian mining sector. The Canadian
mining ecosystem – mining lawyers, deal makers, financiers, digital
technicians, geologists – is already withering.

I have little doubt Mr. Bristow and his team will make money for
shareholders. But what a loss for Toronto and for Corporate Canada.
Could Barrick have taken another route that would have preserved its
Canadian status and big head office? The answer is yes.

Mr. Thornton is an investment banker, not a mining manager. His
appearances in Toronto were sporadic. He seemed more concerned with
eliminating managers and head office costs than building a management
team that could reverse Barrick’s fortunes after its disastrous project
cost overruns. As executive chairman without a CEO to challenge him, he
consolidated power in his office, meaning he could pretty much do what
he wanted. As Franco-Nevada’s Pierre Lassonde has pointed out, there was
ample mining management talent in Canada that could have been brought
together to nurture Barrick back to prosperity and solidify its hold
atop the global gold-mining industry. At the same time, Mr. Thornton
seemed more concerned with making deals than organic growth. Surprise –
that’s what investment bankers do: They sell and buy, buy and sell. Even
Mr. Bristow was bought, in effect.

Barrick will probably thrive under Mr. Bristow, a no-nonsense,
results-oriented boss. But it won’t thrive as a Canadian company. Mr.
Munk would not be happy.