Barrick Gold Chairman’s Shakeup Keeps Investors Guessing

On an icy late-January evening in Toronto, more than 30 Barrick Gold Corp. mine managers and country heads gathered in the basement of a pub to hear their executive chairman’s vision for the world’s largest gold producer.

In town for year-end meetings, the group listened intently as John Thornton outlined a plan to give them the authority they needed to run their units like their own businesses, according to a person present. Barrick’s Toronto headquarters would shrink in size and reach.

To outsiders these are eye-opening words, coming from a leader known within Barrick for a detail-oriented style which has placed him at the center of decision-making at different levels of the company.

While his comments suggest he’s trying to return Barrick to its nimble roots, questions remain within the investment community about what that may mean over the long run. Will Thornton, an ex-Goldman Sachs Group Inc. banker, keep Barrick focused on gold, or diversify further into other metals such as copper, as he has hinted in the past?

“I have no idea what’s going on,” said David Christensen, chief executive officer of ASA Gold & Precious Metals Ltd, a San Mateo, California-based investor that holds Barrick shares. “I feel like I’m looking into a black hole.”

Barrick is expected to report Wednesday its first annual per-share profit in three years, according to analyst estimates compiled by Bloomberg. To get there, the company has reduced production costs and the number of mines it operates. Still, it remains saddled with $13.1 billion in debt after the acquisition of copper producer Equinox Minerals Ltd. in 2011 under a previous CEO. Barrick may report on Thursday writedowns on copper assets of as much as $3.5 billion, Stephen Walker, an analyst at RBC Capital Markets, said in a note.

Since Thornton took over, Barrick shares have plunged 31 percent in New York trading, while the Philadelphia Stock Exchange Gold and Silver Index has fallen 19 percent and gold prices are down 6.6 percent.

‘Empire Building’

“The idea of a big global empire-building gold company basically hasn’t worked,” said Patrick Chidley, a New York-based analyst at HSBC Holdings Plc.

ASA’s Christensen will finally get his chance to hear from the Barrick chairman on Thursday. Thornton, 61, plans to join the company’s earnings conference call for the first time and will discuss Barrick’s strategy, according to a company spokesman.

Barrick and its chairman declined to comment on details of its long-term plans or personnel changes. “We’re returning to the partnership culture that defined Barrick in its early days and underpinned much of its success,” the company said in a statement.

Thornton was hand-picked by Barrick founder Peter Munk, now 87, as his successor and joined the board three years ago.

Financial Pedigree

Munk was attracted by his financial pedigree and knowledge, according to one of several people familiar with the recent changes at Barrick who were interviewed by Bloomberg News for this story and asked not to be named because they weren’t authorized to speak about Thornton or Barrick.

Another reason for choosing Thornton was his experience of international affairs at a time when the mining industry has never been more global. Starting with a stake in one mine three decades ago, Barrick now operates across five continents, including countries with complex economic and political agendas.

By the time Thornton left Goldman in 2003 he had risen to president under former Chief Executive Officer Henry “Hank” Paulson. Next, he went to China as a professor at Tsinghua University School of Economics and Management, a position he still holds. He also took several directorships, including one on the international advisory board of China Investment Corp.

No Experience

The arrival at Barrick of Thornton -- an American with no mining experience -- raised eyebrows in Toronto and the investment community. Almost from the start, he’s been a polarizing figure both inside and outside the company.

His 2012 appointment to co-chairman came with an $11.9 million signing bonus that was criticized as excessive by several Canadian pension funds. Following the breakdown of merger talks between Barrick and Newmont Mining Corp. in April, Newmont took the unusual step of publicly criticizing Thornton for not being constructive. There are currently no talks between the two companies.

By the time he started as chairman last April, he’d already brought in McKinsey & Co. consultants and led the discussions with Newmont.

In a July interview, Thornton spoke of trying to understand the “original DNA” that made Barrick successful. “Inevitably, when things get big they get more bureaucratic,” he said at the time.

Publicly, Barrick has dropped just a few hints about its long-term strategy. Speaking in July, Thornton said the company planned to become a “leading” producer of copper as well as gold. In October, though, Barrick Co-President Kelvin Dushnisky said gold would remain the priority.

Low Profile

The comments have confused some investors.

“We’re not sure if they are trying to be Barrick Gold or if they want to be Barrick Mining,” said Dan Denbow, who helps manage assets including Barrick shares at USAA Precious Metals & Minerals Fund in San Antonio, Texas.

So far, Thornton has kept a low public profile. He prefers engaging with shareholders individually, has avoided earnings calls and has cut down on the number of conferences at which Barrick presents, said a person familiar with the matter.

In the meantime, a slew of senior managers have departed. The departure of Chief Executive Officer Jamie Sokalsky was announced in July; he hasn’t been replaced. Instead, Thornton appointed Dushnisky and another co-president, Jim Gowans. The new management structure is confusing and Barrick lacks a “real figurehead,” said Denbow at USAA.

Also leaving in the past year have been General Counsel Sybil Veenman and deals head Rick McCreary. Chief Financial Officer Ammar Al-Joundi will leave this month, to be replaced by Shaun Usmar, formerly at miner Xstrata Ltd.

New Hires

Other recent recruits include Kevin Thomson, a top Toronto deals lawyer brought in to oversee strategy; Richard Williams, a former commander in the U.K.’s special forces who is now Barrick’s chief of staff; and Woo C. Lee, formerly of the U.S. State Department, who took the new position of president, China.

Other changes introduced by Thornton include conference calls every two weeks for executives and operations managers, and idea-swapping sessions with executives at Royal Dutch Shell Plc. and Ford Motor Co., according to the person familiar with the matter.

The function of Barrick’s headquarters, located in one of Toronto’s tallest skyscrapers, will largely be that of compliance and capital-allocation. The number of employees there is down to less than 200, from 500 in earlier years, with more cuts to come.

E-Mail Requests

For some of those remaining at the office, it hasn’t been an easy ride. Thornton is known to e-mail requests at all hours and asks to be included in lower-level decision-making, according to people familiar with the recent changes.

Dushnisky, the Barrick co-president, said in October that Thornton’s methods at Barrick reflect a desire to learn about the company and industry, and shouldn’t “be confused with micromanagement.”

Inspiration for Thornton’s approach might be found in a three-year-old book that he extols to coworkers: “The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success,” by William N. Thorndike.

The 2012 tome examines common traits of eight successful and “unconventional” CEOs and their companies. These leaders, according to Thorndike, a founder of a private-equity firm, were outsiders who disdained conventional approaches. They mixed conservatism with boldness, worked out of “bare-bones” offices and “rarely communicated with Wall Street,” he wrote.

Some of those qualities can be seen in Barrick’s chairman. The decentralized model, with a small corporate headquarters, “makes the most sense” for the gold-mining industry, according to Chris Mancini, an analyst at the Gabelli Gold Fund.

Of the latest crop of leaders in gold, “he’s the only one I can think of that’s not from the mining industry,” Mancini said in an interview. “I think he’s moving in the right direction.”

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