Wednesday, May 21, 1997
Barrick's close call with disaster
Inquiries into salting break out all over
By DAVID THOMAS
The Financial Post
Hidden behind the headlines of the gold scam at Bre-X Minerals
Ltd.'s Busang site is an equally gripping story -- the twisted
courtship, shotgun marriage and sudden divorce of Bre-X and
Barrick Gold Corp.
Relations between Bre-X and its much larger suitor formed that most
elemental of human dramas, a geologist insider says. "It comes down
to a conflict between personalities."
Neither side is willing to talk, but it's known that dealings between the
two companies turned sour at a very early stage -- and then got much worse.
Stories have circulated for a few years in Indonesia that there was bad blood between the two, says
Robert Chase, president of South Pacific Resources Corp.
"I understand that Bre-X felt hard done-by and mistreated," says Chase, whose Vancouver-based
mining company is actively exploring in Indonesia.
According to Barrick spokesman Vince Borg, the two companies made initial contact in mid-1993.
"That was when we first talked about possible joint ventures," Borg says.
David Walsh, fresh from personal bankruptcy after floundering with several mineral properties in the
Northwest Territories, was running Bre-X out of his Calgary basement.
He'd scrambled to raise some money, and a few months before had teamed up with a Dutch-born,
Canadian-trained geologist he'd met 10 years earlier -- John Felderhof.
In addition to the Busang prospect in East Kalimantan, Bre-X then had an interest in two other
Indonesian properties.
But Felderhof, who had been made Bre-X's general manager, especially liked the potential of Busang,
even though it had already been drilled and abandoned.
Discussions between Barrick and Bre-X took place over the latter half of 1993; then Barrick stepped
forward with the makings of a deal.
Barrick's head of exploration at the time was Paul Kavanagh, a respected mining executive with a
wealth of experience that included a stint as president at Newmont Mining Corp. of Canada Ltd.
According to a well-placed mining industry source, Kavanagh's deal called for Barrick to put up about
$2 million toward exploration. The deal also proposed that Barrick take up a minority interest in
Bre-X.
The two companies were also to agree to a 60% Barrick/40% Bre-X partnership in any property that
went to production.
Both sides were so optimistic that on Jan. 24, 1994 -- right in the middle of negotiations -- Bre-X put
out a news release declaring that a deal between the companies was imminent.
At about the same time, the 65-year-old Kavanagh left Barrick under apparently unpleasant terms, a
mining industry source says.
Kavanagh's replacement, Alexander Davidson, stepped into the talks and assumed a tougher
bargaining stance.
The proposed partnership was reportedly tilted in Barrick's favor by 70%-30%, and the exploration
kitty was reduced to between $1 million and $1.5 million.
"Pure nonsense," was Walsh's response to Barrick's revised terms. "Bre-X has declined Barrick's
offer and no further discussions are contemplated," he said in a statement, which included a call for
new offers from senior mining companies.
"Just because you're small, some people think you're stupid," Walsh said later.
Walsh was "incensed," says the mining industry source. "He thought he had a done deal, so he
basically told [Peter] Munk and Barrick to go to hell."
According to the source: "Throughout the whole episode, Walsh was always terribly upset with
Barrick.
At the same time, Peter Munk, chairman and chief executive of Barrick, became dead set on getting a
piece of Busang, but Walsh would not even see him. He wouldn't even talk to him on the telephone."
At this point, Busang was still just moose pasture in the Borneo jungle.
For Munk, whose Barrick board is loaded with a Who's Who of influential figures -- including former
heads of government George Bush and Brian Mulroney -- the rejection was an unaccustomed slap in
the face. He hounded Bre-X in vain over the next few years.
Meanwhile, Walsh hit back at Barrick. One month after he had snubbed the larger firm's revised offer,
Walsh hired Kavanagh to serve on his board of directors. The move is widely speculated to have been
motivated in part to get back at Canada's senior gold producer.
Still, Barrick continued to pursue a deal with Bre-X until late 1996 and rumors of a hostile takeover
were rampant.
Eventually, Munk and Barrick switched tactics and turned to pressuring the Indonesian government to
get the inside track on Busang.
With the help of a personal letter to President Suharto from George Bush, Munk's approach paid off in
late November. The Indonesians essentially ordered Bre-X into a shotgun wedding with Barrick.
The wedding was formalized in mid-December, but the preparations turned messy when the
Indonesian government waffled and pondered taking a bigger piece of the pie for itself.
In February, Barrick backed out, calling the deal unpalatable. At that point the Indonesian government
arranged a new marriage, handpicking Freeport-McMoRan Copper & Gold Inc. as Bre-X's
betrothed.
That turn of events was a blessing in disguise for Barrick.
By several insider accounts, the senior company didn't wake up to the gold salting scam until Freeport
did its own drilling and found nothing.
"[Barrick] never for a second believed it was salted," says one insider. "They were duped, just like
everyone else."
Twisted courtship: Stories have circulated in Indonesia for a few years that there was bad blood between Barrick's
Munk and Bre-X's Walsh |
