The Northern Miner’s 1993 “Mining Man of the Year” Barrick’s Munk and Robert Smith – by Olav Svela

Since 1915, the Northern Miner weekly newspaper has chronicled Canada’s globally significant mining sector.

In 1983, a small oil exploration company bought a piece of an Alaskan placer mine and a half interest in the Renabie gold mine in northern Ontario. Gold production totaled a mere 3,000 oz. that year; revenue came in at roughly $1.7 million.

Ten years later, the ex-oil company, now a pure gold producer by the name of American Barrick, will crank out 1.6 million oz. and revenue in the neighborhood of US$675 million. By 1995, it should be producing 2 million oz., making it perhaps the largest producer in North America. In terms of market capitalization, American Barrick is Canada’s third-largest company, behind BCE and Seagram.

Barrick is by far the gold mining story of the past decade. This past year, it became abundantly clear its properties, already boasting reserves of 27 million oz. gold, are to rise considerably.

In recognition of the achievements of Barrick, The Northern Miner’s annual Mining Man of the Year award has two recipients in 1993 — Peter Munk, chairman and chief executive officer, and Robert Smith, president and chief operating officer.

“It is a distinct honor to be a recipient of this award,” Munk said. “But Robert Smith really deserves 100% of this, because Bob is the driving force behind American Barrick as an outstanding mining company. He recruited our team.”

As for Smith, he feels “Mother Nature and Lady Luck deserve recognition.” And, of course, his team — Brian Meikle, senior vice-president, development; Alan Hill, executive vice-president, operations; and Ken Thomas, senior vice-president, metallurgy and construction.

To grow so big in so short a time is no mean feat. Said Smith: “I doubt if any of us in our wildest dreams could have said we’d be as successful as we have been.”

But Barrick’s story is even more noteworthy in that Munk, an entrepreneur who developed resorts in the South Pacific and, earlier, Canadian high-fidelity systems, knew virtually nothing about mining.

But in the early 1980s, he began to believe the difficulties in South Africa might lead large institutional investors to seek gold equity investments based in less volatile countries. This was particularly true of European institutions, which were required by law to maintain a certain percentage of portfolio holdings in gold.

The ideal company, as Munk conceived it, would be a pure, large gold producer, operating in a stable political and economic environment, which secured growth through acquisitions and, finally, offered a conservative financial profile (hedging gold production and an emphasis, operationally, on cost-cutting).

He set out to develop just such a company whose production was drawn predominately from North American mines.

“Barrick has elected to make precious metals investments to diversify and balance its asset base,” rather dryly reveals the 1983 merger document that sealed the deal between Barrick and several other companies over the Renabie mine near Wawa, Ont.

Barrick merged with Sungate, an Alberta-listed stock which owned Renabie. Simultaneously, Cullaton Lake Gold Mines acquired half of Renabie for about $11.6 million paid in Cullaton shares. The exchange ratios valued Barrick at $1.90 per share, Sungate at $1.80 and Cullaton at $3.70. Cullaton at the time was operating a gold mine in the Northwest Territories.

What with the issuing of first preferred shares and second preferred shares and various options for exchanges into common shares, the merger for shareholders was by no means simple to decipher. Some skeptics began viewing the fledgling and still-unknown Barrick as a paper chase.

The deal was made even more complex because Barrick enlisted Campbell Resources to manage the Renabie mine. This lack of technical expertise clearly was Barrick’s Achilles’ heel. However, one of its strengths also emerged from the deal, in the form of innovative financings. Barrick financed the acquisition and subsequent expansion of Renabie by issuing units which gave investors a call on Renabie’s gold production.

The following spring, Barrick struck again. This time, it helped bail out an indebted, low-grade gold producer called Camflo Mines. It was the ideal marriage. Barrick was virtually debt-free, growth-oriented, but razor thin in geological and mine operations know-how. Camflo, by contrast, was debt-laden, “mature,” but loaded with technical talent. In fact, short of liquidating the Malartic mine, Camflo had run out of options servicing its $80-million debt. Shareholders’ equity was a slim $5.2 million, although it was earning a reasonable $2.6 million per annum (1983).

In gaining the Camflo mine near Malartic, Que., Barrick never again relied on hired help (as it did with Renabie) to run its mining operations. With Camflo came the core technical people (Smith, Meikle and Meredyth Holt) who helped Munk realize his dream of creating a major North American gold producer. “When we acquired Camflo, I really thought it was not so much one of the great mines in North America but the best management team we could get our hands on,” Munk said.

(The Camflo mine was only recently mothballed. But Smith personally ensured the mill would keep running, keeping it available for milling in northwestern Quebec by selling it to Richmont Mines.)

After the Camflo merger, the next move for Munk and his new technical team came with the acquisition of the Mercur mine in the Oquirrh Mountains, 35 miles southwest of Salt Lake City, Utah. The US$100-million mill (a “Cadillac” by all accounts) and mine began producing in April, 1983. Barrick bought the struggling operation from Getty Oil for US$31 million in cash and another $9 million in production payments.

Again, Barrick’s financing included gold purchase warrants piggybacked onto a debenture issue.

Until Barrick came on the scene, the Mercur was a standard carbon-in-leach facility yielding about 85,000 oz. per year. The former operators blended oxidized and refractory material, resulting in abysmal recoveries in the 73.6% range.

Barrick immediately separated the refractory from the oxidized to boost recoveries and reduce operating costs. On the advice of Kilborn Engineering, it began stockpiling the refractory material, bumped up production to 3,500 tons per day from 3,000 and instituted an overall cost reduction strategy. It added a heap-leach component to recover gold from low-grade material and later, following up on initial work done by the original Mercur staff, treated the refractory sulphides in an autoclave. In short, Barrick did everything right at Mercur.

“Our operating costs came way down (about US$200 per oz. versus US$280),” said Smith. “And our ore reserves increased with a lower cutoff grade.” In hindsight, the Mercur experience was a key link in the evolution of Barrick. As Smith puts it: “It provided us with the confidence that we could tackle tough situations.”

As the Mercur mine acquisition became reality, Barrick liquidated its oil and gas properties in Canada for $31 million. It was also in the midst of developing the Holt-McDermott property in northeastern Ontario. With the Mercur acquisition — together with production from Holt-McDermott, Camflo, Renabie and its piece of Pinson (a Nevada producer acquired early on) — Barrick could claim more than just moderate success in its bid for status in the North American gold mining fraternity. It was producing 225,000 oz. per year. But the best was yet to come.

In 1987, the 7,000-acre Goldstrike property in Nevada, held by Pancana Minerals in joint venture with Western States, was a small heap-leach operation. Pancana Minerals was controlled by Joe Rotman who, coincidentally, had been a Barrick director since its founding. Smith was acquainted with the property because Rotman had asked him to review the operation. Western States was short of cash, so Goldstrike was shopped around by brokerage house Burns Fry in Toronto. As Smith recalls, up until then there had been one deep hole on the property with “so-so results.” The property was shown to several mining companies, but, says Smith, “it’s not that we were any smarter than anyone else; we were hungrier.” Critics figured the Barrick brass had been too hungry and, at $62.5 million, had overpaid for the 40,000-oz.-per-year heap leacher.

“I recall vividly the meeting in my office when Bob Smith and Dr. Meikle recommended buying Goldstrike, which was at the time an outrageous $62 million,” Munk told The Northern Miner. “I knew nothing about mining. I knew it was a risky business, but there was no leap of faith when people such as Smith come and say `Peter, we’ve got a good hunch that this is worth it’.” In truth, Barrick could not know the bonanza it had acquired. But visions of its true worth were already taking shape in the minds of some at Barrick. “I can remember standing on the property with Dr. Brian Meikle, Allan Hill and Larry Kornze and there were all these little gopher pits on surface,” Smith told The Northern Miner. “Brian wondered out loud whether all those little pits might represent leakage from below.” In other words, could they be the small surface expressions of a monster system underneath?

They were, of course. And the critics who scoffed at the price tag have since been sated on large helpings of humble pie. Goldstrike was the bargain of the century. At a reserve of 27 million oz. and still growing, Barrick paid less than $3 per oz.

Smith recalls when the assays came in on that first deep hole. “I told Brian (Meikle) that some son-of-a-you-know-what had salted the core. I didn’t even tell Peter about the hole. I didn’t believe it,” Smith says. So Smith ordered a check assay and another hole drilled close to the first. But the check assay and the second hole came in even richer than the first results.

The original Betze discovery hole cut 95 ft. of 0.28 oz., while another intersection revealed 200 ft. of 0.47 oz. However, the hole that caught everyone’s fancy was the one announced in March, 1987. It intersected 620 ft. of 0.30 oz.

The thickest ore intersection so far is a hole that cut 1,190 ft. of 0.32 oz. per ton in the southeast end of the Betze deposit.

And the reserves will probably rise. “I don’t feel the final chapter has been written on the Goldstrike property. It’s an amazing property. I just shake my head,” said Smith.

Meikle, presenting plans for the Meikle underground mine last year, said he was “confident that there is a lot more ore to be discovered.” He added: “For a geologist, this Goldstrike area is better than a dream come true.” Indeed, as Barrick wrestles now with what it can do for an encore and with the prospect of government-imposed production royalties, it has been better than a dream for all concerned.

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