Ex-Goldman Banker Emerges as Barrick Gold Dealmaker

Liezel Hill and Christopher Donville write for Bloomberg. 

A week before Barrick Gold Corp. (ABX) Chairman Peter Munk retires, his successor John Thornton is emerging as a dealmaker as the former Goldman Sachs Group Inc. banker pursues a bid to combine the two biggest gold miners.

Negotiations between Barrick and Newmont Mining Corp. broke off last week amid minor disagreements while leaving open the possibility that discussions could still resume, two people with knowledge of the matter said April 19.

The deal under discussion would have seen Thornton become executive chairman of the combined company while the chief executive officer would have been Gary Goldberg, who currently leads Newmont, the people said. Toronto-based Barrick’s CEO Jamie Sokalsky would have led a smaller gold producer spun off from the merged company, according to the people.

The proposed tie-up and its management reshuffle confirm Thronton’s elevation as Barrick’s most senior executive (image left added). The 60-year-old, who had no role in the mining industry until he joined the company’s board just over two years ago, is set to succeed Munk, Barrick’s 86-year-old founder, as chairman at the annual shareholders meeting next week. Leading a successful acquisition of Newmont (NEM), in what would be the biggest gold takeover, would set up Barrick to do further deals, including ones involving other commodities.

Long-Term Strategy

“I think if anybody has the skill to drive this transaction through, whether or not it is successful from an operational standpoint, I think he certainly has the leadership,” said Michael Sprung, president of Toronto-based Sprung Investment Management Inc., which owns Barrick shares. “It’s a merger to set them up for bigger, future M&A deals which may in fact include an element of diversification.”

Spokesmen for Barrick and Newmont both declined to comment on last week’s talks. Newmont’s shares closed little changed at $25.04 in New York, while Barrick rose 1.8 percent to C$19.37 in Toronto. Gold for immediate delivery fell 0.4 percent to $1,284.58 an ounce.

Thornton spent 23 years at Goldman before departing in 2003. He joined Barrick as an independent director in February 2012 and was hired as co-chairman in June of that year, just as the company fired CEO Aaron Regent following a decline in its share price.

Slumping gold prices and rising mining costs eroded Barrick’s margins, raised concerns about its debt and spurred the company to start selling higher-cost mines. Those divestments have improved the company’s financial flexibility and will reduce its borrowings, Goldman Sachs said today in a note. Goldman raised its recommendation on the stock to buy from hold.

McKinsey Review

As part of Barrick’s senior management, Thornton has helped oversee its long-term strategy. He has looked at establishing partnerships with Chinese companies including China Investment Corp., people familiar with the matter said in December. Thornton’s role also involves developing and maintaining relationships with governments, according to Barrick.

Thornton was behind a decision to bring in management consultant McKinsey & Co. to help evaluate the mining company’s direction, one of the people said in December. While he sees Barrick’s top priority to remain as the leading gold producer, he’s open to rethinking the whole business, which may involve acquiring mining assets in other minerals, such as copper, the people also said. Barrick already produces copper in Chile and Zambia.

Spinoff Plan

“We haven’t seen him put a stamp on the company yet,” said Michael Siperco, a Toronto-based analyst at Macquarie Capital Markets. “Obviously, the combining of Barrick and Newmont would be a meaningful step in that direction.”

Both Barrick and Newmont operate on five continents and have a combined market value of about $33 billion. Before talks broke off April 18, the companies had agreed to an all-stock merger in which Barrick was to offer Newmont shareholders a premium of 13 percent more than Newmont’s average share price over the latest 20 trading days, one of the people with knowledge of the situation said.

The companies had agreed to all terms not related to a spinoff of Asia Pacific assets and had identified $1 billion a year in cost savings, the people said. The companies, which have tried to merge several times in the past, still have interest in getting a deal done, the people said.

Most of the cost savings would come from Nevada, where Barrick and Newmont both produce more than a third of their gold. They operate in close proximity in the state, from which they originally built out their respective businesses.

Goldman Contender

While Sokalsky is a 20-year veteran of Barrick, Thornton and Goldberg are both relative newcomers to gold mining at a tumultuous time for the industry. Goldberg worked in various roles at diversified miner Rio Tinto Group before joining Newmont as chief operating officer and became CEO in March 2013.

Newmont was considering acquisitions in both gold and copper and was adding in-house capacity to assess copper supply and demand trends, Goldberg said in a September interview. Taking on more copper was a “logical” step after gold companies began to lose the valuation premium that they used to attract, he said.

While at Goldman, Thornton was seen as a top contender to succeed Henry Paulson as CEO in the early 2000s, according to “Money and Power: How Goldman Sachs Came to Rule the World” (2011) by William D. Cohan.

Placer Dome

After leaving the bank, he headed to China, helping to start up a business leadership program at Beijing’s Tsinghua University. He sits on the board of China Unicom (Hong Kong) Ltd., the country’s second-largest mobile phone carrier, and is a member of China Investment Corp.’s international advisory board. He’s also chairman of the board of trustees of the Brookings Institution, where he helped establish the John L. Thornton China Center.

Munk, a Hungarian immigrant who escaped the Nazis as a teenager, founded Barrick as an oil and gas company, later shifting his focus to gold. The company expanded through acquisitions, with at least 29 completed since 1994, according to data compiled by Bloomberg. Barrick surpassed Newmont as the industry leader when it bought Placer Dome Inc. in 2006 for about $10.2 billion including net debt, a record for a gold takeover.

“The ultimate goal is to, in my case, to be the biggest,” Munk said at a May 2011 conference organized by Bloomberg in Toronto. “Why would you be happy with halfway?”

To contact the reporter on this story: Liezel Hill in Toronto at [email protected]

To contact the editors responsible for this story: Simon Casey at [email protected] Steven Frank

From Bloomberg