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Munk's well-connected successor looks to fix Barrick

Barrick Gold Corporation Chairman Peter Munk leaves the annual general meeting of shareholders in Toronto May 2, 2012. REUTERS/Mike Cassese
Barrick Gold Corporation Chairman Peter Munk leaves the annual general meeting of shareholders in Toronto May 2, 2012. REUTERS/Mike Cassese

By Nicole Mordant and Allison Martell

(Reuters) - Soon after he joined Barrick Gold Corp's board last year, John Thornton, the designated successor to founder and chairman Peter Munk, took a company team to visit Ford Motor Co and learn about the automaker's turnaround story.

Ford, where Thornton has been a director since 1996, and its Detroit peers were on the skids just four years ago. But now the automaker is posting record earnings after a major overhaul of its costs and products.

The expedition to Ford may offer a glimpse into what the former Goldman Sachs Inc second-in-command thinks is needed at Barrick, the world's biggest gold producer, as it faces a host of challenges amid a diminished outlook for the mining industry.

The 59-year-old American, a China hand who is expected to become sole chairman at Toronto-based Barrick by next spring, takes charge at a time when sentiment has soured on the mining sector after cost overruns and a sinking gold price. Observers say he could shore up Barrick by allying it with powerful investors in China.

Munk, a controversial figure who many say holds too much sway in the Barrick boardroom, picked Thornton as his co-chairman and successor, and the pair have worked closely for more than a year.

Barrick has underperformed many of its peers so far this year. Its shares are languishing near 21-year lows, hurt also by market dissatisfaction with the company's governance and corporate missteps that include ballooning costs at its Pascua-Lama project in the Andes and a disappointing copper mine purchase in 2011.

"The whole industry is going through a pretty radical rethink about their strategy," said Goldman Sachs Vice-Chairman Michael Evans. He said China is the key strategic consideration not just for Barrick but for the entire industry.

"I think John will use that seat as chairman to think about transformational change in people, strategy, culture, whatever. It's the way he thinks," said Evans, who has known Thornton for 20 years and witnessed his ascent at Goldman.

Yet Thornton, who lacks a mining background, may not be every investor's dream chairman.

There is no evidence yet that he has bolstered Barrick's ties with Chinese investors. Meanwhile, his $11.9 million signing bonus inspired a minor shareholder revolt. And some investors are disappointed that he has not acted more quickly to align executive pay with performance at Barrick as he was fresh from doing just that at HSBC Holdings , where he was head of the board's compensation committee.

"When Thornton joined in 2012, there was an expectation level that change would be effected much quicker," said Onno Rutten, a portfolio manager with Mackenzie Investments' precious metals and resources funds, which own about 1 million Barrick shares.

Barrick's board is mulling changes to its executive compensation, according to a recent filing. Sources familiar with the situation say it will soon announce a revamped board, including new independent directors.

CHINA INC

Chairman of Barrick is not a ceremonial role, and that is not likely to change under Thornton, who is known as a hands-on board member. Thornton joined Barrick's board 21 months ago and was named co-chair in June 2012.

To his supporters, the father of four is a bold visionary with unparalleled government and business connections in deep-pocketed China, one of the world's largest metal consumers, and those ties are a key reason Munk picked him for Barrick.

After boarding school in Connecticut, Thornton completed programs in history, law and management at Harvard, Oxford and Yale. He has been a director at not just Ford and Barrick but also at Intel Corp , China Unicom <0762.HK> and News Corp .

Thornton left Goldman in 2003, when he was co-chief operating officer, after it became clear he would likely wait years for a shot at the top job.

One of a handful of partners who built Goldman's businesses in Europe and Asia in the 1980s and 1990s, he chose an unconventional second career in 2003, teaching a leadership seminar and serving on the advisory board of Tsinghua University's business school, a top institution in Beijing.

"What few would have known or appreciated was the importance attached to such an appointment by the Chinese government," wrote Charles D. Ellis in his 2008 book, "The Partnership: The making of Goldman Sachs," noting that Thornton was the first non-Chinese person in such a position.

The job had Thornton commuting between his home in Palm Beach, Florida, and Beijing once or twice a month and made him a teacher and mentor to many of China's political elites.

A training ground for China's senior leaders, Tsinghua counts President Xi Jinping, former president Hu Jintao and former premier Zhu Rongji among its alumni. Thornton also serves on the International Advisory Council of Chinese sovereign wealth fund CIC (China Investment Corp).

Barrick recently held talks with CIC and other investors about potential partnership opportunities, said two sources who asked not to be named as the talks were confidential.

Sources familiar with Barrick's discussions say the company's efforts go beyond merely securing a passive equity investment in the company. Two sources said Barrick was interested in a deeper, long-lasting partnership with the Chinese that could include co-development and co-financing on big projects, possibly Pascua-Lama.

FRIENDS IN HIGH PLACES

Teaching some of China's current leaders gave Thornton "the kind of trust, the kind of acceptance, the kind of relationships in a country where the fuel for our next phase of growth" will come from, Munk said in April.

Dominic Barton, global managing director of management consultancy McKinsey & Co, went to Thornton for advice a decade ago when he moved to Shanghai as McKinsey's Asia chairman.

Barton remembers a phone call some years back from Thornton inviting him to a workshop with a Communist Party official named Xi Jinping - now president.

A source familiar with a recent meeting Barrick arranged during the United Nations General Assembly said the foreign minister of China, Wang Yi, attended "because John was there."

Even so, several banking and industry sources say Thornton faces an uphill climb in forging deeper ties with the Chinese. They say the country is more interested in investing in industrial metals like copper and iron ore than a precious metal like gold.

Thornton, who chairs the board of the Brookings Institution, one of Washington's most influential think tanks, has connections outside China as well.

Political connections are increasingly important to miners as governments around the world demand higher environmental standards and more taxes. In Chile, costs at Barrick's Pascua-Lama gold and silver project have risen in part because of requirements that the miner address environmental concerns, especially around contamination of water.

According to sources familiar with the situation, Thornton held talks with the presidents of Chile and Argentina to work through obstacles facing the project, which straddles the border between the two countries.

But it is not clear how much progress he made. The massive project, which has long-running and complex problems and has drawn opposition from a nearby indigenous group, was shelved in October.

MUNK'S MAN?

A key question for Barrick shareholders is whether Munk, 86, will still hold sway in the Barrick boardroom after he steps down as chairman. Many have complained that Munk has been too dominant.

But McKinsey's Barton said the gray-haired, bespectacled Thornton is his own man, and not easily cowed. Barton recalled attending a meeting with Thornton and a Chinese client some years back. Thornton opened by asking the chairman whether he was more loyal to his company or the Communist Party, a sensitive question in China.

"When the translation happened, people sucked their breath in a bit, and I was going, 'Yup, we're out this account.' But it was good. The guy actually smiled," said Barton.

(Corrects to million, not billion, in tenth paragraph)

(Reporting by Nicole Mordant in Vancouver and Allison Martell in Toronto; Additional reporting by Euan Rocha in Toronto; Editing by Janet Guttsman and Douglas Royalty)

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