King of Gold
The inside story of Peter Munk's
Indonesian gold coup
Munk in his
Toronto office: a
sleek corporate
vision
BY JENNIFER WELLS
eter Munk was in Budapest, doing the
ribbon-cutting thing on what happens to be
the largest shopping centre in Eastern
Europe, which happens to have been built by
TrizecHahn Corp., his multibillion-dollar real estate
company. While in Budapest, he received a fax
requesting his attendance in Jakarta one week
hence to discuss Barrick Gold Corp., his
multibillion-dollar gold-mining company. So instead
of heading home to Toronto, where he was due to
attend a swish roast for Barrick president Bob
Smith, Munk took the company Gulfstream jet and
headed for Indonesia. Peter Munk is not the type
to hop-to for just anyone. But this, he knew, was
big. Very big. It was not a time for lieutenants.
On Nov. 14, Peter Munk left his presidential suite
at the Jakarta Grand Hyatt and headed to the
government offices of Ida Bagus Sudjana,
Indonesia's minister of mines and energy. Munk
had in tow a Madame Yoke, assistant to Siti
Hardiyanti Rukmana, eldest offspring of Indonesian
President Suharto, as well as the son of one of
Suharto's superministers, who happens to be
Sudjana's boss. Munk's power team, supporting
the sleek corporate vision of Barrick, met not only
Sudjana and various government types, but David
Walsh, John Felderhof and Roly Francisco
representing the far-less polished vision of a
heretofore pip-squeak mining outfit out of Calgary
called Bre-X Minerals Ltd. Bre-X had staked the
Busang gold find in Kalimantan, the minimum
40-million-ounce bonanza that some predict will hit
100-million ounces one day. Busang is the mine
find of the century. Munk wanted it. Luckily for
him, the Bre-X boys have been cast as a crew of
unsavvy operators who so mishandled themselves,
and so misjudged others, that it appears Munk will
get his way.
The meeting ran its course, Munk giving his
pro-Barrick spiel; Walsh, who only found out the
day before that Barrick would be present, giving his
pro-Bre-X spiel. It was all a set piece, for at the
end, Sudjana, reading from a prepared text,
outlined the rough terms of what he wanted.
Barrick, he said, would get 75 per cent of Busang;
Bre-X, 25 per cent. He gave the parties a deadline
of Nov. 20 to reach an agreement on mine
development. The next day, the parties met again,
this time Bob Smith taking the lead for Barrick,
supported by Gary Sugar and Jamie Anderson of
RBC Dominion Securities, Barrick's investment
advisers. The Nov. 20 deadline came and went
with no agreement. Discussions, which had initially
been cordial, had become acrimonious. On Nov.
22, Secretary General Umar Said extended a new
deadline of Dec. 4. "I expect to hear only one word
from you," he said. "Agreement."
This week, both companies will again go back at it
in Jakarta. If Munk wins, he will have built, over a
mere decade, the largest gold-mining house in the
world, bigger, even, than the South Africans. Last
week, Bay Street dubbed Munk a "latter-day Cecil
Rhodes."
Munk has played his imperial hand beautifully. It
was Christmas, 1986, when he purchased the
Goldstrike Mine, sunk in the Carlin Trend near
Elko, Nev. Many said that Munk was, well,
crackers. True, the Carlin Trend was seen as a
great gold prospect, but the thought that Munk had
anything at all at Goldstrike, a site already worked
over by a major American mining house, was far
too rich for the majority of gold analysts. Munk
phoned John Tumazos, a Wall Street heavyweight,
to convince him of Goldstrike's lustre, which, he
said, contained 15-million ounces of gold. Munk's
plan was to dig the biggest, deepest gold-mining pit
the world had ever seen. "A great canyon," Munk
called it. "Bunch of bullshit artists," said Tumazos as
he hung up.
Much of the derision sprang from Munk's past:
from the Clairtone days, the television/hi-fi
extravaganza that the Hungarian entrepreneur
co-founded with partner David Gilmour in the
1950s, which crashed in 1971 leaving the
government of Nova Scotia with something on the
order of $23 million in losses; and from the colorful
company he keeps--Saudi princes, the Khashoggi
brothers, Essam and Adnan. And given that
Munk's most successful enterprise was hotel
building on South Sea islands, in which the
Khashoggi clan held a major stake, and given that
he admittedly knew zip about gold mining, that he
did not draw huge early support was no surprise.
Inspecting core
samples at the
Busang site: the
mine find of the
century
But Goldstrike was the mother lode that its name
suggests, eventually producing two million ounces
of low-cost gold annually. Barrick became the
continent's most profitable gold producer, and the
cash flow fed by Goldstrike in turn fed Barrick's
acquisitive nature. In the fall of 1994 it took over
Lac Minerals Ltd., a pursuit that took Munk six
years. And last summer, Barrick acquired Arequipa
Resources, a promising junior for which it paid
$1.1 billion because it liked what it saw in
Arequipa's Peruvian properties.
But it is Bre-X that will deliver Munk's ambition,
which he stated a scant year ago, to be the largest
gold-mining house on the globe. Barrick smelled
Bre-X early. Before Bre-X even started drilling,
Barrick geologists Larry Kornze and Paul
Kavanagh visited the site, and recommended to
headquarters that Barrick do a deal with Bre-X. A
tentative agreement was struck that would have
seen Barrick take control of the junior company.
When that fell apart, apparently over Barrick
demanding changes to terms of the deal, it looked
as though Munk had made a serious error. Bre-X
was confident it could make a deal elsewhere: there
was Placer Dome Inc. and Teck Corp., both of
Vancouver, and there was Newmont Mining Corp.
of Denver. Each was desperate to make Busang
theirs.
But Munk had not misread the situation at all. He
merely started to play the game from the smart end,
the Indonesian end, getting inside the politics of one
of the world's nastiest, and greediest, regimes.
Munk is not new to the region. Barrick has its
hands on 22-million acres spread largely through
Kalimantan and Irian Jaya, two of the country's
provinces. Barrick's modus operandi in Indonesia
has been to forge joint ventures with junior mining
outfits, funding their exploration efforts. Take
International Pursuit Corp., run by Munk's old pal,
and former corporate hire, Stephen Dattels.
International has more than 10-million acres in
Kalimantan circling the Busang site.
Barrick's various Indonesian mining projects are
currently awaiting about five Contracts of Work,
key government approvals. These so-called COWs
are the crucible of the Bre-X saga: of Walsh's
inability to secure a COW for the key part of the
Busang site; of Bre-X's aggressive drilling of the
site when it had a mere provisional licence in hand;
of challenges laid to Bre-X's control by its
Indonesian partner, billionaire Jusuf Merukh; of
questions raised about the offshore corporate
transfer of the Busang property in the first place.
Yet Bre-X has said repeatedly that it has not
transgressed the letter of Indonesian mining law. In
October, in a desperate effort to get the
Indonesians onside, Walsh announced a deal with
Sigit Harjoyudanto, eldest son of Suharto. Sigit was
to get 10 per cent of Busang, and $1 million a
month in "consulting fees" for 40 months. It was
what it was, a payoff. Unfortunately for Mr. Walsh,
he picked the wrong Suharto in the relatively
powerless Sigit. That the government would then
step in to force its preferred resolution has been
seen as an attempt to make an example of the
presumably misbehaving Bre-X. "It was like being
caught sleeping with the virgin princess," says one
Bay Street observer, referring to the reverence with
which the Indonesians hold their precious
resources. "They," he says, referring to the Bre-X
team, "had their proverbials chopped off."
The moves of Peter Munk have been positively
stealth-like by comparison. While Munk has never
met Suharto, he struck a neat deal last summer with
Suharto's eldest and extremely powerful daughter,
Siti Hardiyanti Rukmana (Tutut). Munk has a
gold-plated international advisory board, including
former prime minister Brian Mulroney, former
Bundesbank head Karl Otto P”hl and former U.S.
president George Bush to help him gain entr‚e in
various countries. That is what they are paid for.
That is precisely what Mulroney delivered when
Munk and Power Corp.'s Paul Desmarais decided
to pursue mining prospects in China, a plan that
was subsequently shelved.
The right Indonesian entr‚e was found in Tutut. To
Tutut's Citra Lamtoro group, Barrick agreed to
award all contracts for road construction, should it
ever build a mine. At the time, none of Barrick's
own interests were anywhere near such
decision-making. Busang, in rugged,
jungle-covered terrain, will need infrastructure
soon. And the Indonesians are desperately eager to
get the mine, which will take two years to
construct, on the go. According to Kontan, an
Indonesian weekly, Tutut herself met Sudjana in the
course of the November meetings, apparently to
discuss work contracts for Busang. The news that
Barrick would be in control of the project broke in
Kontan days before Bre-X issued its news release
stating that "the Indonesian Government is very
concerned about the immediate development of the
Busang Gold Deposit" and that the Indonesians had
"given guidance to Bre-X to finalize a joint venture
between Bre-X and Barrick Gold Corp. on the
basis of 25 per cent to Bre-X and 75 per cent to
Barrick." Bay Street found the wording bizarre, but
then, it had been written by the Indonesian
government. In its reporting of the 75/25 split, the
Jakarta Post said the battle pitted a Canadian
company against an American one, wrongly
assuming that Munk's empire is a U.S. gold
colossus.
If he is successful in getting Busang, the devoutly
Canadian Munk will have to wrestle with two large
issues. There is, first, Indonesia's request that the
"parties should consider" handing over 10 per cent
of the project, a piece that could be worth at least
$600 million. Last week, Bay Streeters were
arguing that they far preferred the optics of money
flowing into government coffers over the Walsh
plan of directly lining the pockets of a mini-Suharto.
But the two are indistinguishable. Tutut is a mighty
member of the House of Counsellors, and Barrick
can provide no details on how contracts to Tutut
will be priced, essential in determining just how
different the two styles of payment precisely are.
Barrick also has to deal with the Bre-X
shareholders, those who have struck it so rich in a
place so far away. Five years ago, Bre-X was,
literally, a 10-cent stock on the Alberta Stock
Exchange looking for diamonds in the Northwest
Territories. The stock has made millions for many,
some of whom mortgaged their houses to buy in.
Given that Bre-X has not released results of its
exploration program for the past four months,
investors have been left in the dark as to what their
shares are worth, and what Barrick might pay for
them. Most analysts believe that because Bre-X is
widely held by institutional investors, including a
number of large mutual funds, Munk will deal fairly
with the shareholders. Individual investors,
however, are panicked. Gregory Chorny, who says
he and his family own about one per cent of
Bre-X's shares, circulated a letter to other
shareholders on Friday, urging them to register their
concerns by faxing form letters to Barrick and
Bre-X. But Barrick has no intention of taking out
Bre-X. It simply gets to cherry pick Busang, for
which it will likely ante up all of the capital
expenditures to bring the mine into production,
estimated to cost about $1.5 billion. How
shareholders will be compensated, whether in the
form of warrants, options, special shares, cash, or a
combination of those is not yet known. A U.S.
class-action suit could result if they do not get
satisfaction.
Some suggest that the fight for Busang is not over.
Jean Anes, vice-counsel for investment at the
Indonesian Consulate in Toronto, said his
government will consider other bids to develop
Busang right up until the Dec. 4 deadline. One
contender, Placer Dome of Vancouver, says it had
"high level" discussions with Bre-X about joining
the Busang project just days before the Barrick
announcement. "This," says Anes, choosing a
strained description of what has gone on in Jakarta,
"is just a pure business deal."
Through it all, Munk has remained his sleek,
reserved self. The night the Bre-X news came out,
Munk and his second wife, Melanie, were doing
the Christmas tree lighting thing at the Gardiner
Museum of Ceramic Art in downtown Toronto.
That very day, he had been mulling further real
estate acquisitions for Trizec. He will soon be
heading for Switzerland for his annual ski holiday,
from which nothing can keep him. Not even
Busang. By the time he gets there Peter Munk
should know whether he is, after all, king of the hill.
With TOM FENNELL in Toronto
A 10-year conquest of the gold
market
Dec. 31, 1986
Peter Munk's three-year-old American Barrick
Resources Corp., originally created to explore for
oil, pays $60 million for 50 per cent of Nevada's
Goldstrike mine, North America's richest gold
deposit.
Jan. 17, 1987
American Barrick pays $50 million to acquire
PanCana Minerals, which owns the remaining
50-per-cent interest in the Goldstrike project.
Nov. 1, 1993
Five months after vacating the Prime Minister's
Office, Brian Mulroney joins Barrick's board of
directors.
March, 1994
American Barrick and Exall Resources Ltd., a
Toronto-based mining company, jointly buy the El
Triunfo gold property on the southern tip of Baja
from the Mexican government.
Sept. 6, 1994
Barrick wins a bidding war against Royal Oak
Mines Inc. for Lac Minerals Ltd., a Toronto-based
gold producer with mines in Canada, the United
States and Chile. The price: $1.9 billion.
Jan. 18, 1995
American Barrick Resources Corp. is renamed
Barrick Gold Corp.
May 3, 1995
To assist Barrick's overseas expansion, Munk
establishes an international advisory board. Its
members now include former U.S. president
George Bush and Paul Desmarais, Sr., past
chairman of Power Corp.
Dec. 1, 1995
Barrick Gold acquires a 40-per-cent interest in the
High Desert Mineral Resources Nevada Inc. gold
property.
Aug. 27, 1996
Munk's company pays $1.1 billion for 93 per cent
of Arequipa Resources Ltd., a Vancouver
company that controls an open-pit gold mine and
exploration properties in Peru.
Nov. 26, 1996
Barrick, with the support of the Indonesian
government, confirms that it is negotiating to
acquire a majority interest in that country's Busang
gold deposit, believed to be one of the largest gold
finds ever.
MACLEAN'S / DECEMBER 9, 1996 |
