Barrick Gold Corp. executive chairman John Thornton has been a great admirer of Randgold Resources Ltd. CEO Mark Bristow and has circled him for years. On Monday, the bromance triggered Barrick’s US$6-billion takeover of Randgold.
It was an effective – though expensive – way for Mr. Thornton to fill the vacant chief executive position at Barrick; Mr. Bristow is to become the head of the enlarged company. Now we know why Mr. Thornton was tempted to leave that position open for four years. As far as he was concerned, there was only one candidate for the job, and that candidate was Mr. Bristow.
It’s a safe bet to assume that both men see eye to eye on many levels. If they had not, the deal to create a gold-mining colossus with a market value of more than US$18-billion surely would have fizzled.
But how long can the mutual-admiration club remain intact? China could emerge as a sticking point. Mr. Thornton, a career sinologist who might have had a good shot at becoming U.S. ambassador to China had Hillary Clinton won the 2016 presidential election, is stuffing Barrick with Chinese investors and partners, and has issued them an open invitation to examine any Barrick project they think could benefit from Chinese technical know-how, cash and political connections. Mr. Bristow is much more of a go-it-alone sort of guy, a builder who has financed and opened five mines in Africa and who likes to keep control of his projects. He might not want to give up half the show to Chinese resources companies.
By some accounts, Mr. Thornton and Mr. Bristow could be separated-at-birth siblings. Both are known as extreme Type-A personalities who were born to be bosses. They appear to have similar management views. When Mr. Thornton, a former Goldman Sachs president, became Barrick’s executive chairman in 2014, he set out to recreate the company as it was in its early years, under founder Peter Munk.
He wanted Barrick to become a lean, entrepreneurial partnership with no middle management, where each employee owned shares in the company. Barrick would stop “chasing ounces” and focus on high-grade, long-life mining projects that could throw off a lot of free cash flow (the amount left over after capital expenditures and operating costs are paid), all the better to reward shareholders and invest in new exploration and development plays.
In an interview earlier this month in London with The Globe and Mail, he noted that Randgold, under Mr. Bristow, has the same structure. “I am pursing exactly the same model that Peter Munk invented,” Mr. Thornton said. “The only other company that has also followed this model is Randgold. Mark Bristow will tell you that he modelled Randgold off of what he called ‘Early Barrick.’ ”
Randgold, unlike Barrick, never strayed from its core operating philosophy and strategic view, which is why it has consistently outperformed the rest of the mining sector on virtually every measure, including return on capital, cash flow per share and total shareholder returns. Mr. Thornton apparently thinks that Mr. Bristow can complete Barrick’s transformation, ending its days as a stumbling, top-heavy, bureaucratic, cash-burning giant. On that front, the two men are surely united – what Mr. Thornton started, Mr. Bristow might finish.
The strategic view is where they might clash. Note that both Mr. Thornton and Mr. Bristow have “executive” in their titles, and Mr. Thornton has made it abundantly clear that he’s not moving aside just because he dropped Mr. Bristow into the CEO’s office. Mr. Thornton appears determined to forge strong connections between China and Barrick. Already, he has recruited Chinese partners for two big Barrick projects and has invited Chinese investors to examine the massive Pascua-Lama resource in the Andes, a troubled development that chewed through US$8-billion in Barrick money before it was put on ice.
As if to prove the point that China is Barrick’s future, the company announced shortly after it unveiled the Randgold takeover that China’s Shandong Gold will buy up to US$300-million of Barrick shares while Barrick will buy an equivalent amount in Shandong’s publicly traded entity (Shandong and Barrick are equal partners in the high-altitude Veladero project in Argentina).
Tanzania, where Barrick controls three mines through its 64-per-cent stake in London-listed Acacia Mining PLC (formerly African Barrick), could emerge as a sticking point. The Tanzanian government has no love for Acacia, which has never paid income tax in Tanzania, and has banned the export of gold concentrates while it tries to squeeze the company for a new value-sharing deal. Mr. Thornton told The Globe this month that there is an “almost 100-per-cent chance” that the Chinese will be brought into Acacia’s Tanzanian projects, noting that China has far better political connections in Tanzania than the North Americans do.
Mr. Bristow might have a different idea. Randgold has built pretty good government relationships in Africa, where it operates mines in Senegal, Côte d’Ivoire, Mali and the Democratic Republic of the Congo. He might want to try to work the Randgold magic in Tanzania. “Mr. Bristow has always described tax as the dues a company has to pay in order to operate within a particular country, and, inasmuch as Randgold has been a diligent taxpayer in the countries in which it operates, he might find himself on common ground with the Tanzanian government,” Charles Gibson, analyst at Edison Investment Research, said in a Monday note.
But Mr. Thornton seems bent on giving Acacia’s mines the Chinese treatment. That might be a mistake, because Barrick needs mining growth, and that means taking risks in Africa. While Barrick’s Nevada operations are big and profitable, they alone cannot keep the company at the top of the global mining heap. Under Mr. Thornton, Barrick has opened its doors wide open to Chinese investors. Mr. Bristow may be less keen to see outside interests buying up great chunks of the company.
Barrick may be about to go through another personality change. Which of the two alpha males’ views will emerge victorious?
Eric Reguly