John Thornton, seen here at his Toronto offices, is the new chair of Barrick Gold Corporation.
Incoming Barrick Gold Corp. chairman John Thornton has friends in high places in China – including the country's premier, central bank chief and anti-corruption czar, to name a few.
Now Mr. Thornton's job is to turn those connections into new business opportunities for the gold miner as it seeks to turn the corner on a string of costly setbacks.
Mr. Thornton's clout in China is the key reason Barrick founder and outgoing chairman Peter Munk chose him as his successor and persuaded the company's board to award a $11.9-million (U.S.) signing bonus – an amount that became a flashpoint for shareholders already upset with the company's performance. Barrick's stock price has dropped sharply amid nearly $14-billion in writedowns tied to two major projects and a recent $3-billion share issue to help pay down its $15-billion debt load.
Since becoming Barrick's co-chairman in a June, 2012, management shakeup, Mr. Thornton said he has been laying the groundwork with the Chinese.
The former Goldman Sachs president has spent more than 20 years working with Chinese policymakers. He shares Mr. Munk's vision of turning Barrick into a diversified mining giant and tapping China to join the effort.
"We are the world's leading gold company and we should continue to be that under all circumstances. We are in copper. I personally happen to think we should be in copper," Mr. Thornton said in an interview this week after Barrick announced he will become chairman at the next annual meeting.
In Mr. Thornton's view, forging ties with China in some ways is simply a natural fit. For example, rumours circulating for months suggest Barrick may want to sell its gold directly to China's reserve bank to help increase its gold reserves.
"This is just a matter of logic. If the biggest central bank in the world has explicitly told the world that it intends to diversify over time into various asset classes, and if one of those asset classes is gold and if you're the biggest gold company in the world, ipso facto the likelihood there will be some kind of relationship there," Mr. Thornton said.
He has not spoken to Zhou Xiaochuan, governor of the People's Bank of China, about this idea but he did consult Mr. Zhou about working for Barrick.
Mr. Thornton said his Barrick talks with the Chinese have been with the highest levels of the communist government right on down the system. He stresses he does not want what he calls a "transactional" or one-off deal with the Chinese. He wants to build an enduring relationship with the government.
"That takes time," Mr. Thornton said. "The first step must be successful. It must be seen to be. Whatever we do first, I would like our current shareholders to say 'Wasn't that a good thing to do.' And I would like the Chinese, who do whatever they do, to say 'That was a smart thing to do.'"
Mr. Thornton envisions Barrick first doing one "thing that is relatively modest" with the Chinese. For example, he says Barrick could consider a Chinese construction company for Pascua Lama. Mr. Thornton has not spoken to any such companies about the South American mine and says it's only an example.
Michael Evans, a Goldman vice-chairman who worked with Mr. Thornton for years in London and Asia, describes Mr. Thornton as a hugely strategic operator who "loves flawless execution" and prefers to work behind the scenes.
When Goldman won the contract to take some of China's government-controlled telecom services public in 1998, it stemmed from Mr. Thornton's work.
In the mid-1990s, Mr. Thornton got wind that the vice-premier at the time, Zhu Rongji, wanted to reform some of the country's state-owned telecoms.
Mr. Thornton, who had taken Britain's Vodafone public in the late-1980s, arranged for a meeting with the number 2 banker at the newly formed state-owned Chinese investment bank, a Chinese national who did not speak English.
Through a translator late at night in Beijing, Mr. Thornton said: "Here's the real situation, you call yourself a banker and yet you know nothing about banking. I am in charge of Goldman Sachs Asia and China and I know nothing about any one of those. So we have a perfect marriage here. You're going to teach me China and I am going to teach you banking and I am going to make you look like a hero in front of Zhu Rongji and everyone else who is important to you. And I don't need any visibility, credit, anything. All I want to do is understand China out of this whole process."
Mr. Thornton stressed his experience with Vodafone and the Chinese banker took Mr. Thornton's request to Wang Qishan, then the head of China Construction Bank (one of China's four biggest banks) and a protege of Mr. Zhu. Mr. Wang then spoke to Mr. Zhu and Goldman made its foray into China.
Mr. Thornton, Mr. Evans and former U.S. treasury secretary and Goldman chief executive Hank Paulson met Mr. Zhu in Beijing and Goldman got the deal.
Mr. Thornton now counts Mr. Zhu and Mr. Wang as some of his closest friends. Mr. Wang is now one of the seven men who make up the Politburo Standing Committee, the top leaders in China.
"Those were relationships we developed in 1995 and '96. But instead of being mid-level and semi-senior government officials, they are now running the country," Mr. Evans said in an interview.
Mr. Thornton was a candidate to become Goldman's chief executive but left in 2003 when it became clear Mr. Paulson would stay. Mr. Thornton then turned his attention to China policy and became the director for the global leadership program at Tsinghua University in Beijing and chairman of the Brookings Institution think tank. He resigned from the boards of News Corp. and HSBC Holdings to become Barrick's chairman. He will remain on the boards of Ford Motor Co. and Brookings.
Mr. Thornton, who joined Barrick with no mining experience, has already created waves in the gold sector by saying he was open to hedging gold, or selling a portion of gold at fixed prices to mitigate the downturn in gold prices.
Barrick abandoned this deeply unpopular practice in 1999. Its hedging strategy helped the company during the 1990s but became a liability when the price of gold rose from around $230 an ounce in 2000 to above $1,000 during the 11-year bull market in gold.
"I just don't see how you can't look at that because there is too much volatility not to consider it," Mr. Thornton said.
Gold has since dropped 35 per cent to $1,233 an ounce from the record high of $1,900 reached in 2011, forcing all gold companies to overhaul their operations.
Rachelle Younglai