Barrick Mining chairman John Thornton speaks at the company's annual general meeting in Toronto in 2015. Mr. Thornton considered breaking Barrick up in 2018, before buying Randgold’s extensive African operations.Mark Blinch/Reuters
Barrick Mining Corp. ABX-T chairman John Thornton considered carving up the Canadian gold miner into three parts and selling off its African mines in 2018, according to court filings, but instead doubled down on the risky jurisdiction.
At the time, Mr. Thornton was executive chair of Barrick and had operational control. With its shares in the doldrums, he was under a lot of pressure to turn the company around. One way out of the morass, as he saw it, was to break it up.
The split strategy, which came to light in a recent lawsuit against Barrick and Randgold Resources Ltd., an African mining company that Barrick acquired in 2019, suddenly holds new weight. Seven years on, Barrick is being pressed by an activist investor to split itself up, and this week the company set in motion a process that could see that happen.
Barrick announces management shakeup as activist investor takes large stake in company
The revelation that Mr. Thornton considered breaking Barrick up in 2018 but then bulked up by buying Randgold’s extensive African operations shows that he made a sudden about-face on strategy. Mr. Thornton, who was recruited by Barrick founder Peter Munk, has been with the company since 2012.
Mr. Thornton declined to comment for this story.
Investors assign a premium valuation to Barrick’s North American mines, but multiple geopolitical spats at its African sites over the years have led to those assets being valued at a significantly lower level. In January, Barrick was forced to shut down its Malian operations after clashing with the country’s military leaders over a new mining code. The company recently reached an agreement with Mali to end the dispute, but it’s unknown when mining will resume.
The lawsuit detailing Mr. Thornton’s original breakup idea centres around Ian Hannam, a London-based investment banker who sued the company, alleging he was owed US$18-million in fees for his work on the Randgold deal, even though he was never formally hired as an adviser. The case ultimately went to trial, and Mr. Thornton and former Randgold CEO Mark Bristow, who went on to become Barrick’s CEO, both took the stand.
Back in 2015, Barrick was struggling to pay off billions in debt from an expensive copper acquisition and a botched mining project high in the Andes. Around this time, Mr. Bristow started talking to Mr. Thornton to see if a deal between the two companies was possible.
While Mr. Bristow originally wanted Barrick to buy Randgold for a premium, Mr. Thornton was willing to pay only the market price. Randgold’s shares were trading at a much higher valuation than Barrick’s at the time, so it made little sense to accept a deal with no premium.
As an alternative strategy, Mr. Thornton, a former Goldman Sachs investment banker, in 2018 pitched a three-way split that would see Barrick keep its core North American mines, spin off its copper operations and sell its African assets to Randgold, according to the court documents.
Mr. Bristow was keen on buying the African business, given his company’s exclusive focus on operating African mines, and he had a reputation for running them well.
After Mr. Hannam, the banker, sent him details of the proposed three-way split, Mr. Bristow replied: “I would take the global non-USA!!!! That’s where [Randgold] would sit comfortably.”
However, the possibility of a split quickly died because Randgold went through a period of underperformance relative to Barrick and Mr. Thornton quickly realized he had leverage to push for a no-premium acquisition of Randgold. He was also partial to the Randgold acquisition because it would bring Mr. Bristow in as CEO, potentially helping to solve Barrick’s operational problems in Africa.
Barrick’s lead director steps down after plans for him to succeed John Thornton fall apart
In September, 2018, Barrick announced it was acquiring Randgold at no premium for approximately US$6-billion, with Mr. Bristow indeed becoming Barrick’s CEO. The acquisition brought mines in the Democratic Republic of the Congo and Mali into the Barrick portfolio, on top of its existing Tanzanian exposure.
On Monday, Barrick said it was considering spinning off a minority share in its North American operations, opening up the possibility once again of carving up the company. Investors in the spinoff would get exposure to the company’s politically safe operations in Nevada and the Dominican Republic but won’t have any exposure to risky Africa. A minority spinoff falls short of the full split many investors have called for. And while the new proposal has shades of what Mr. Thornton originally pushed for back in 2018, Barrick shareholders will still have heavy exposure to African operations as part of the new plan.
As for the lawsuit, a judge handed Mr. Hannam a partial victory in March, deciding that he did indeed help broker the Randgold deal in some fashion, even though there was no formal record of him being hired as an adviser or agreement that he should be compensated.
The judge also offered a poetic take on investment banking. “In the main, investment bankers, like teenage lovers, pour out their efforts, almost without limit and in response to the slightest encouragement, in the hope of reaching the nirvana of a mandate,” he wrote.
To this point, Mr. Hannam once ended an e-mail to Mr. Bristow this way: “Miss talking to you.. From a business point of view..”
In the end, the judge, a former corporate lawyer, wrote that “any sensible investment banker will after a while decide that a particular mandate is no longer worth pursuing, on the principle of not throwing good money after bad. However, until that point is reached, as [Alexander] Pope wrote in his ‘Essay on Man,’ hope springs eternal in the human breast.”
The judge awarded Mr. Hannam US$2-million, plus his expenses.