The changing world of energy trading #MasterEnergy @PlattsOil

Banks involved in energy have pulled back from the sector while merchant
traders known largely for their secrecy are strengthening their
position

The changing world of energy commodity trading

The Barrel Blog

By Jeff Ryser | March 28, 2014 11:48 AM Comments (2)

The
world of energy commodity trading has gone through a rather extensive
reshuffling over the past few months. The key thing to note is that
banks involved in energy have pulled back from the sector while merchant
traders known largely for their secrecy are strengthening their
position.

The most notable deal came last week when Swiss-based merchant firm Mercuria agreed to buy the entire physical commodity trading business of JPMorgan Chase
for $3.5 billion. Mercuria, which is headquartered in Geneva and is
predominantly a crude and refined products trading shop, has a team of
approximately 1,200 people working in some 37 offices around the globe
and has annual “turnover,” or essentially gross annual revenues of
around $100 billion.

JPMorgan, whose overall size is an
astounding $2.4 trillion in terms of the value of all its assets, had
valued the oil trading portion of the business it sold to Mercuria at
$1.7 billion. It valued its US and European natural gas trading business
at approximately $800 million, its metals business at $500 million and
its electricity and coal trading businesses at approximately $300
million, prior to the sale.

Mercuria therefore agreed to pay $200
million or so above book and will add JPMorgan physical assets, trading
books and contract to its already extensive trading portfolio.

Included
in the deal, apparently, is a trading team in London, New York, Houston
and Singapore that numbers more than 400 people. When JPMorgan bought
the trading operations of RBS Sempra in 2010 for $1.9 billion, it saw
its trading staff balloon to almost 700 people. It spent several years
bringing that staffing level down to a more manageable level.

Now,
Mercuria, founded by Swiss nationals Marco Dunand and Daniel Jaggi in
2004, will begin the task of integrating the various JPMorgan trading
teams with its own teams. Also now under discussion, according to
JPMorgan, is the future role at Mercuria, if any, of Blythe Masters, the
45 year-old British-born global head of JPMorgan’s commodities unit.

Dunand
and Jaggi have both spoken recently, and  publicly (at places like
Davos), acknowledging the fact that the merchants’ penchant for secrecy
runs counter to the push by governments to instill far greater trading
transparency. With its deal to buy JPMorgan, Mercuria, for example, will
have to report physical  US natural gas sales to the Federal Energy
Regulatory Commission. Its US affiliate already reports its quarterly US
wholesale power sales to FERC.

Mercuria’s vision of its business model is fairly clear. In a recent interview with the newspaper Neue Zurcher Zeitung,
Dunand offered that there are “two schools” for commodity trading. He
said, “One is the Marc Rich school, with Glencore and Trafigura, which
is obviously successful. And then there is the investment bank school,
which has more of a risk approach.”

Marc Rich, of course, is the
legendary commodities trader who, while working for Philipp Brothers in
the late 1960’s and early 1970’s essentially created the spot market for
crude, thereby breaking the hold over the market that big oil companies
had using long-term supply contracts with supplier countries.

The
key idea behind March Rich-style trading is to have access to your own
logistics, such as shipping and storage, and to strike deals with big
bulk buyers. The merchants are also not subject to Dodd-Frank trading
restrictions, as are the banks.

On the other hand, the investment
bank school of trading implies a far greater dependence on the
financial markets to not only hedge positions but also to hedge
positions for fee-paying clients. When trading for their own book–which
banks will be prohibited from doing when the so-called Volcker rule is
implemented in mid-2015–the investment banks rely heavily upon churn, or
buying and selling and re-buying and re-selling, to generate revenue
from large volumes of trading. This activity also provides markets with
liquidity.

Joining Glencore, Trafigura, and Mercuria as exemplars of the Rich school of commodity trading are Gunvor and Vitol.

On
Monday, the head of Vitol, Ian Taylor, made a comment on the impact of
the banks leaving the energy commodities trading business. He said, “The
withdrawal of some investment banks from commodity related activities
has reduced liquidity in markets such as power.” This is no doubt true,
since the pull-back by the banks has been most pronounced in the
wholesale power trading business due in no small part to tightened
regulations and lower prices and thus dampened price volatility.

It
was Taylor’s next comment, though, that also caught some people’s
attention. He said that the reduced liquidity “created longer-term
opportunities and our footprint in both the US and Europe is growing.”

Taylor
conceded that 2013 was “a very challenging year for many in the
physical energy distribution business.”” He said that “markets remained
extremely competitive with new entrants increasing margin pressure on
certain regional activity.” “While these market conditions aren’t
expected to change overnight, changing supply and demand balances are
generating some new opportunities,” Taylor said.

Meanwhile,
Barclays PLC and Deutsche Bank are understood to be selling their power
trading books, as the big UK and German banks announced they are exiting
the business.

While Citibank has been trying to strengthen its
trading in Europe and the US, Bank of America Merrill Lynch, strong in
the US, has shutdown European natural gas and power trading.

Morgan
Stanley, of course, is in the process of selling its Global Oil
Merchant unit to the Russian oil company Rosneft, for an undisclosed sum
that is nonetheless estimated to be in the range of $400 million.
Roughly 100 Morgan trading executives are expected to go to work for
Rosneft in London and New York, or about a third of  Morgan’s entire
global commodity trading team.  Rosneft earlier established a trading
unit in Geneva that is headed up by a former Shell trader.

One
question that has popped up is whether there are any future US or
European sanctions in the offing against Rosneft chief Igor Sechin, and
whether such sanctions could hurt the deal with Morgan Stanley.  The US
and the EU have already leveled sanctions against individuals in
retaliation for Russian President Vladimir Putin’s move into Crimea.
Sechin is a former chief of staff to Putin and was appointed head of
Rosneft by Putin in 2004.

On March 20 the US sanctioned the
Russian Gennady Timchenko, who was co-founder of Gunvor.  The
Geneva-based firm said that the day before the sanctions were announced,
Timchenko sold his shares in the firm to Swedish co-founder  Torborn
Tornqvist, who now owns 87% of the 14 year-old company.  Gunvor, mainly
an oil and products trader, employs approximately 500 front and back
office trading professionals and 1,100 people at logistical facilities,
has said that revenue in 2012 was roughly $93 billion.

The US
Treasury Department said it imposed the sanctions against Timchenko out
of the belief that Russian president  Vladimir Putin had earlier
invested in Gunvor and “may have access to Gunvor funds,” an assertion
that Gunvor denied.

The changing world of energy commodity trading « The Barrel Blog



The MasterMetals Blog

#Mining Project failure resulting from lack of social license is extraordinary expensive @Mineweb

Social development shortcomings blamed for mining project failures - Danielson

Although
mining’s record on social license to operate is often seen as poor,
sustainability expert Luke Danielson is confident mining can “lead the
way in pioneering new and more effective social relationships”.

Author: Dorothy Kosich 

Posted:
Monday
,
31 Mar 2014
 

RENO (Mineweb) -



“A large and growing number of project failures
are a direct result of the inability to deal successfully with the
combination of environment, community and social” concerns, said former
Mining, Minerals and Sustainable Development project administrator, Luke
Danielson.


In a speech to the 2014 Mining and Land Resource Institute in Reno,
Nevada, attorney Danielson observed, “(Mining) Project failure and
conflict resolution resulting from lack of social license is
extraordinary expensive.”


“Lengthy conflicts are all too frequent and debilitating” for
companies, governments, communities, shareholders and other
stakeholders, he said.


Danielson, now the president and co-founder of the Sustainable
Development Strategies Group highlighted several major mining projects
which have had difficulty with issues stemming from social license to
operate.


For instance, Freeport-McMoRan Copper & Gold’s Grasberg project
in Indonesia has experienced 51 incidents since July 2009, which
resulted in 17 fatalities and 59 injuries, Danielson noted. He estimated
that the company has incurred $352.3 million in direct security costs
from 2001-2012.


Plans by Rosemont to build North America’s largest new copper mine
were dealt a major blow in November when congressional supporters of the
project canceled their vote after Native American tribes through the
United States lobbied against the Arizona mining project.


The difficulties of securing a social license to operate also proved a
headache for Pebble Project partner Anglo American, which eventually
wrote off $300 million on the project, he observed.


The stalled Newmont Conga Project may be headed for the same fate of
the Cerro Quilish project, which was suspended in 2004, Danielson
suggested.


Vedanta’s battles with indigenous tribes resulted in the suspension
of its Orissa bauxite mining project in India after the company had
invested $800 million in it, Danielson observed.


Among the other stalled projects highlighted by Danielson are the
Lucky Jack Molybdenum project in Colorado, Ascendant Copper’s Junin
project in Ecuador, along with Glencore-Xstrata’s intent to sell its
ownership in the controversial Tampakan copper-gold mine in the
Philippines.


Meanwhile, as global populations grow, so does the demand for
minerals to support their economic development, Danielson noted.
Ironically, securing a social license to operate has become even more
challenging for mining companies because it is becoming “harder and
harder to find places to mine that don’t have people living in them.”


He observed that the top five countries for mining investment also
have low populations. Even in the gold mining state of Nevada, the
percentages of persons employed by the mining industry have declined
dramatically, although the Nevada population has increased 17-fold since
1950, according to Danielson.


Danielson, who has served as a legal and sustainable development
consultant to a number of hardrock mining companies, highlighted what he
viewed as the questionable tactics of mining companies, including major
mining companies, to secure a social license to operate. Among the
tools utilized by miners is using high-tech software to identify and
track members of anti-mining project groups; or buying hundreds of radio
spots which promote the message that the Bible says minerals are good,
while the Catholic Church is wrong to oppose mining projects.


Mining companies have hired detectives to track opposition, while
other miners have doubled campaign contributions in an effort to buy
project approval, Danielson alleged.


A chairman of a mining company once reportedly declared,” We’ll give
10% of our stock to the Army and then see how long these [community]
protests last,” said Danielson.


Yet, another company has been engaging in a highly technical debate
of what constitutes a glacier. “Engaging in technical debates…with a
bunch of local farmers doesn’t work,” Danielson declared.


Meanwhile, most banks now subscribe to the Equator Principles, a
credit risk management framework for determining, assessing and managing
environmental and social risk in project finance transactions.


“The negotiation of community development agreements is now expected
in much of the world,” Danielson said. “We are headed toward of system
in which some form of community consent in the norm.”


“In Canada it’s almost impossible to develop a (mining) project without a community development agreement,” he added.


Another potential problem involves first contact between mining and
exploration employees and community members. Studies show community
attitudes are highly impacted by the actions and attitudes of the first
company representatives on the ground,” said Danielson. “How many drill
crew chiefs are trained in community relations?” he asked.


Nevertheless, Danielson is confident that mining will make the same
kind of strides in community consent for mining operations that the
industry has already made in environmental and health and safety issues.


Observing that in the past the mining industry has often employed
highly trained experts to analyze problems and devise solutions, “Today,
mining can lead the way in pioneering new and more effective social
relationships,” Danielson advised.


“These issues are extremely important to the future of the industry,”
Danielson concluded, adding they can become “very expensive when things
go wrong.”



Read the article online here: Social development shortcomings blamed for mining project failures - Danielson - SUSTAINABLE MINING - Mineweb.com Mineweb

Peter Munk: A mining magnate nears the end of his golden reign - The Globe and Mail

On his desire to merge Barrick with Glencore:

Mr. Munk's idea was to create a diversified,
Canadian-based mining giant that could compete with BHP, the world's
largest mining group, Rio Tinto, Brazil's Vale (which bought Inco) and
Anglo American. Part of the rationale was financial. A diversified miner
would be able to insulate itself from the worst of the cyclical
downturns. Gold, for instance, and copper, are countercyclical; the
former is bought by investors when economies are falling apart, the
latter when economies are posting strong growth. Glencore's commodities
trading and logistics business, a robust money maker regardless of
prices, would also protect the enlarged group. The biggest companies
also have the best access to the international capital markets, a
necessity to sate the voracious capital appetites of mining companies.

Peter Munk: A mining magnate nears the end of his golden reign

The Globe and Mail

---

On
a chilly evening in early March, Peter Munk picks me up from my hotel
in his tiny Fiat Punto, manual transmission, that he drives himself. His
wife Melanie is stuffed in the back and our destination is the local
schnitzel restaurant, where the Munks are treated like anyone else in
Klosters, the Swiss ski village near Davos.

What a change. The
last time I spent more than a few minutes with Mr. Munk was in 2008, in
Montenegro's glorious Bay of Kotor, the Mediterranean's only fjord. We
were on his chartered superyacht, the 50-metre Te Manu, a nautical
pleasure palace with a crew of 11 that would have made any oligarch
proud.

Has Mr. Munk, the founder, co-chairman and former chief
executive officer of Barrick Gold Corp., fallen on hard times since
then? Yes and no.

At $27-billion, Barrick is worth less than half
of its peak in 2011, just before the gold price collapsed and the
financial horror of the company's now-suspended Pascua-Lama mining
project in the Andes was exposed. Mr. Munk's wealth has declined along
with the share price (although he owns only 2.1 million common shares),
but certainly not to the point where he is flying economy and forgoing
oysters and champagne.

Instead, the Fiat represents the new,
simpler life of the Hungarian emigrant to Canada who turned a motley
collection of gold assets into the world's mightiest gold producer. Mr.
Munk will leave the Barrick board at the company's annual shareholders'
meeting in Toronto on April 30, after which John Thornton will go from
co-chairman to chairman. The Barrick board meetings, endless encounters
with institutional investors and phone calls at three in the morning
will disappear, along with many of the perks that went with his status
as one of the world's most powerful mining bosses. The little Fiat will
get driven more often. The vacations in Klosters, which the Munk family
considers home, and Montenegro will get longer.

The transition
could save his life or kill him. Mr. Munk is 87 and has been equipped
with a pacemaker for more than a decade. His famous energy is draining
away and he knows he can't do the job any more. At the same time, the
man who spent more than half a century building businesses on five
continents could find that retirement bores him rigid, or worse.
"Leaving Barrick is like a Chinese restaurant, sweet and sour," he says
"Sometimes you feel sweet in your mouth, sometimes sour. I live it –
Barrick is me. But I have heart issues. I can't travel like I used to."

I ask if he's worried about his health. "I don't mind dying," he says. "I just don't want Barrick to die."

Indeed,
Mr. Munk is worried about Barrick's future. A couple of years ago,
before Mr. Thornton, a former Goldman Sachs president, joined the
Barrick board, he and Ivan Glasenberg, CEO of Glencore International
(now Glencore Xstrata), talked about merging their companies. Mr. Munk's
idea was to create a fully diversified multinational that could
withstand the jarring ups and downs of the commodities cycle.

If
that had happened, the world's biggest gold mining company and the
world's biggest commodities trader would have formed a global resources
giant to rival BHP Billiton and Rio Tinto, with a market value (based on
today's values) of about $67-billion (U.S.). "It would have been a
perfect combination," Mr. Munk says.

Mr. Munk talks to me from the
living room of his Klosters chalet, which is called Viti Levu, after
the Fijian island where he and partner David Gilmour started the
Southern Pacific Hotel chain in the 1960s. The woody chalet is large and
comfortable, with a heated pool in the basement, but is far from
ostentatious. Its best feature is the magnificent view of Gotschnagrat
Mountain, which the Munk family has skied since the 1970s.

Mr.
Munk stopped skiing two years ago, because of his heart, and it was a
big blow to his recreational life; he had skied every year for 71 years.
Melanie, his second wife, and their five children – two with his first
wife, Linda, two with Melanie, and one adopted – keep the family
tradition going. The walls are decorated with enlarged photos of the
skiing Munks. Melanie keeps a large family scrapbook in the living room
and shows me the newspaper articles about the ski disaster in March,
1988, when a Gotschnagrat avalanche severely injured the wife of her
cousin Charles Palmer-Tomkinson, who was skiing with Prince Charles, and
killed Major Hugh Lindsay, one of Charles's best friends. On separate
occasions, Mr. Munk and his wife have broken bones on the runs, which
are considered among the most challenging in Europe.

A mining mega-merger

When
I met Mr. Munk in Montenegro six years earlier, he was a mere 80 years
old and was full of bluster and optimism as he talked about his plans
for the future, as if he were an MBA fresh out of school. Gold prices
were on the rise and the financial crisis triggered by the Lehman Bros.
collapse was still a couple of months away. He and Barrick seemed on top
of the world.

At the time, Barrick, the product of 17 takeovers,
including Lac Minerals, Homestake Mining and Placer Dome, was the
unchallenged gold mining leader. It was on the verge of starting
construction of the enormous Pascua-Lama gold and silver mine, with more
than 15 million ounces of proven and probable gold reserves and an
astounding 675 million ounces of silver.

Mr. Munk was using his
fame and fortune – he denies ever reaching true billionaire status – to
have fun and make a few extra bucks on the side. The big non-Barrick
project was Porto Montenegro, the former Yugoslav naval base that Mr.
Munk and several rich partners, among them Russian oligarch Oleg
Deripaska and Lord Jacob Rothschild, are turning into a superyacht
marina and resort.

In typical Munk fashion, the investment happened through luck and circumstance.

A
few years earlier, he was swimming off his chartered yacht in Monaco,
felt something strange brush his skin and realized he had had a
distasteful encounter with a condom. At that point, he decided to ditch
the overcrowded and dirty waters of Monaco, learned about a discarded
naval base in clapped-out Montenegro, assembled a team of yacht-loving
investors and worked out a killer deal with the government, which allows
the owners of foreign-registered yachts to escape fuel taxes when they
fill up their floating gin palaces. The project has 200 yacht berths,
with another 200 to go. "I'm very proud of it," Mr. Munk says.

Meanwhile,
gold prices rose relentlessly – $1,200 (U.S.) in mid-2010, peaking out
at almost $1,900 a year later. Each $100 rise in gold was larding
another $750-million onto Barrick's bottom line. In 2011, profit was
$4.5-billion, the level of a big Canadian bank. In spite of the obscene
profits, Mr. Munk had no intention of leaving well enough alone. He knew
that one-product commodity companies were vulnerable to boom-bust
cycles (at the time, he was not aware that the Pascua Lama disaster
would accelerate Barrick's fall from grace).

So he called Ivan
Glasenberg, the head of Glencore (whose offices, in the Swiss canton of
Zug are not far from Klosters). Mr. Glasenberg is the secretive South
African-born accountant who learned the art of commodities trading from
Marc Rich of Marc Rich + Co. Mr. Rich made fortunes from trading oil and
other commodities but pushed his luck too far and was indicted in the
1980s for racketeering, tax evasion and trading with the enemy – Iran.
He was pardoned by Bill Clinton on his last day in the White House in
January, 2001, by which time Mr. Glasenberg and his team had taken Mr.
Rich's old shop and were transforming into a commodities-trading
powerhouse.

Through its own mines and a controlling interest in
Xstrata, the Anglo-Swiss miner that bought Canada's Falconbridge in
2006, Glencore was emerging as a mining force too. In 2011, Mr. Munk,
evidently well aware of the soaring value of Barrick's shares, which
could be used as a takeover or merger currency, started secret merger
talks with Glencore.

Mr. Munk's idea was to create a diversified,
Canadian-based mining giant that could compete with BHP, the world's
largest mining group, Rio Tinto, Brazil's Vale (which bought Inco) and
Anglo American. Part of the rationale was financial. A diversified miner
would be able to insulate itself from the worst of the cyclical
downturns. Gold, for instance, and copper, are countercyclical; the
former is bought by investors when economies are falling apart, the
latter when economies are posting strong growth. Glencore's commodities
trading and logistics business, a robust money maker regardless of
prices, would also protect the enlarged group. The biggest companies
also have the best access to the international capital markets, a
necessity to sate the voracious capital appetites of mining companies.

But
Mr. Munk's desire to transform Barrick into a BHP was also emotional,
which does not necessarily mean it was driven by shameless ego. Mr. Munk
decried the loss of Inco, Falconbridge and Alcan to foreign takeovers
during the great Canadian selloff in the middle part of the last decade
(which also saw Stelco, Dofasco, Algoma Steel and a raft of energy
companies vanish). At one point, during the "hollowing out" of Corporate
Canada, he charged into the Toronto offices of The Globe and Mail to
tell the editorial board that the sales would damage Canada's ability to
compete globally and that they should be reviewed carefully by the
federal government.

When Mr. Munk talks about vanishing companies,
he leaps out of his chair in the chalet and paces back and forth,
raging like a Fortune 500 King Lear. He rattles off the names of global
companies in small countries – Nestlé in Switzerland, Volvo in Sweden,
Philips in the Netherlands. "Why don't we have one?" he says. "Why the
hell should the Brazilians take our best nickel company?"

Mr. Munk
claims a merged Barrick-Glencore would have kept its Canadian identity
even if Mr. Glasenberg became the boss. The trading division would have
been headquartered in Switzerland, the mining in Toronto (the hometown
of Mr. Glasenberg's wife). However, the merger idea never made it beyond
the offices of Mr. Munk and Mr. Glasenberg. Mr. Munk says gold "didn't
fit into the trading pattern" of Glencore, which uses ships and
warehouses to trade coal and other bulk commodities. "It's also not easy
to get two cultures together and there would have been a great amount
of resistance from my shareholders, to switch them when there was a
runup on the gold price. It would be very difficult [for them to
contemplate] that the future cannot be in gold alone," he says.

But
Mr. Munk got a sort of consolation prize in the form of John Thornton,
who shares his ideas that Barrick should become bigger and more
diversified. "Operating under the Canadian flag is a huge competitive
advantage," Mr. Thornton says in phone interview. "The priority is to be
the world's leading gold company and to be the leading, or a leading,
copper company."

A disastrous mining project

Mr. Thornton
was Goldman Sachs's president and co-chief operating officer until 2003,
after which he delved headfirst into China. He served as a director of
HSBC Holdings, the bank whose roots are in China, until 2013, sits on
the international advisory council of China Investment Corp. and is a
professor at Beijing's Tsinghua University. He was appointed co-chairman
in early 2012 and awarded a $11.9-million (U.S.) signing bonus whose
disclosure a year later, when gold prices were sinking and Barrick got
whacked by a $4.4-billion after-tax impairment charge, enraged
shareholders. They voted against it, but since the vote was not binding,
the payment went ahead.

Mr. Munk defends his man to the hilt,
noting that the signing bonus was small compared to Barrick's market
value and arguing that Mr. Thornton is the right man to turn Barrick
into a global mining leader. "It took me years to find John Thornton,"
Mr. Munk says. "He wants to build a global entity."

If falling
gold prices were the only problem facing Barrick, Mr. Munk would be
leaving it relatively unscathed. But he is not – Pascua Lama took the
shine off his golden rule and delivered the message that the company
needs to learn a thing or two about mine development in difficult
terrain. The ultimate insult came when the market values of Vancouver's
Goldcorp and Barrick converged. At last count, Barrick's Toronto stock
exchange value was $27-billion (Canadian), Goldcorp's $25.8-billion. The
minor difference becomes shocking when you realize that Goldcorp's
annual production, at 2.67 million ounces in 2013, was well less than
half of Barrick's 7.66 million ounces.

Investors, in other words,
are valuing Goldcorp's per ounce production much more highly than
Barrick's. That will have to change if Barrick is to regain the
confidence of investors. To do so, Mr. Thornton and Jamie Sokalsky, the
CEO who replaced Aaron Regent, who took the fall for the Pascua-Lama
disaster, will have to ensure that Pascua-Lama's development costs are
tightly controlled once mine construction resumes and that a cost
blow-out like Pascua-Lama never happens again. "Priorities one through
five are operational excellence," Mr. Thornton said.

When Mr. Munk
talks about Pascua-Lama, his otherwise strong voice falls to a whisper
and he slumps in his chair. Indeed, the scale of the disaster is hard to
fathom. In 2013, Barrick reported a loss of $10.4-billion (U.S.), due
largely to the writedowns related to Pascua-Lama and the overpriced 2011
purchase of copper producer Equinox Minerals.

What went wrong? To
this day, Mr. Munk insists he doesn't know how the costs soared to
outrageous levels and why corrective measures were not taken earlier.
It's a classic mystery: Who knew what when? "I could not believe the day
[in 2012] when I was told we could be multibillion dollars over
budget," he says. "For 30 years, we never missed a budget."

Pascua-Lama
is located at a height of 5,000 metres in the Andes, on the southern
reaches of the Atacama Desert. Because of the dizzying elevation,
location in two countries and proximity to glaciers, it presented a
unique geopolitical, engineering and construction challenge. The air is
thin and the high winds and low temperatures can be vicious. Feeding the
thousands of workers and removing the garbage and human waste they
produced proved to be a hideously expensive logistical nightmare. "Every
hour of productive work required probably five hours of work to keep
[the employees] up there working," Mr. Munk says.

As Barrick was
building, the environmental regulations multiplied. "Each new rule
brought the need to build another wall," he says. "Resolving each and
every one of them resulting in more building. The cost of building
escalated to the point it was unreal."

The development costs went
to $8-billion from the initial $3-billion estimate (about $5-billion has
been spent so far). By last autumn, Barrick had had enough and put the
project into cold storage. It plans to revive it once gold prices
recover and it figures out a ways to control the costs. Bringing in a
development partner to spread the risk and the workload is one idea that
is gaining currency within Barrick's executive offices.

Enter Mr.
Thornton, who is impeccably connected in China. "One thing would be to
consider the Chinese as operational partners either for Pascua Lama or
the other mines," he says, referring to the other five big deposits
nearby. "The Chinese are very good at bringing in projects on time and
on budget."

Mr. Munk refers to a "specific event" that he and Mr.
Thornton had hoped to announce by now. He won't say what it was, though
it may have been news about a Chinese partner or possibly the sale of
African Barrick. Barrick tried to sell African Barrick, Tanzania's
biggest gold producer, to China National Gold Group, but those talks
collapsed last year. Since then, Barrick has been paring back its
controlling stake in African Barrick, although an outright sale of the
remaining 64-per-cent investment is not out of the question.

The
"event" could also been the purchase of a large gold producer. But given
the sharply reduced value of Barrick shares, their use as a takeover
currency has vastly diminished.

Mr. Munk has a month left on the
job. He will no doubt step down from the board with a standing ovation
at the annual general meeting. In spite of the Pascua-Lama fiasco, he
did build the world's biggest gold company and, for prolonged periods,
created a lot of wealth for shareholders. He also spared Toronto from
mining company oblivion during the hollowing-out era. While he lived
well, he did give away much of his wealth – $200-million (Canadian) and
counting – to good causes, such as the Peter Munk Cardiac Centre at
Toronto's University Health Network.

Barrick will never be far
from his heart. He hopes Mr. Thornton and the senior executives will ask
his advice on how Barrick can evolve into a global mining champion. He
would love to see Barrick achieve that status before he goes to the
great golden ore body in the sky. "Barrick is my legacy," he says. "The
thing is to leave something behind that is meaningful, especially for
me. I'm an immigrant. I owe Canada. Canada gave me everything I have."



Read the article online here: Peter Munk: A mining magnate nears the end of his golden reign - The Globe and Mail