Chuck Jeannes is the first to acknowledge he walked into the top job at Goldcorp Inc. at a sweet moment.
It was January, 2009, and Goldcorp's shares were rising in tandem with the price of gold as recession-whipsawed investors sought a safe place to put their money. Then, even before Jeannes got through his first quarter as CEO, the price of gold hit a record $1,000 (U.S.) per ounce, a psychological breakthrough that heralded a new era for the precious metal.
At this heady moment, Vancouver-based Goldcorp was also being touted as one of the lowest-cost, fastest-growing producers in its peer group. Goldcorp was, in fact, just getting comfortable with its senior gold status, which it earned through a series of complex, strategic and wealth-creating deals made a few years earlier by such mining icons as Ian Telfer, Kevin McArthur and Rob McEwen-all former Goldcorp CEOs. By the time Jeannes took the reins, Goldcorp had edged ahead of Denver-based Newmont Mining Corp. to become the world's second-largest gold producer, with a market capitalization of around $25-billion.
And the story behind the numbers pointed to more good times ahead. In the course of all that dealmaking, Goldcorp had amassed more than a dozen properties scattered across the Americas-a low-risk part of the world compared to other resource-rich but volatile regions such as Africa, where some of its competitors have operations.
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Moreover, Goldcorp was, and remains, 100 per cent unhedged to the steadsly rising price of gold. That's a sharp contrast to its main rival, Toronto-based Barrick Gold Corp., the world's biggest bullion producer. It wasn't until last year that Barrick made the strategic, yet painful, decision to eliminate its hedge book. The multibillion-dollar writedown Barrick took as a result made Goldcorp appear that much more nimble and attractive to many investors.
Summary? "I stepped into the best job in the world," says Jeannes, 51. "It's just a matter of delivering."
Above his desk is a painting of a pair of spawning salmon, a piece Jeannes bought shortly after getting the top job. For the avid fly fisherman, it's a bit of a stand-in for his increasingly limited vacation time. "I can't think of anything I'd rather do with my spare time than to stand in the middle of a river, with a cigar, casting to rising trout," Jeannes says, leaning back in his chair and miming the act with his hands. "You can't stand in a river and make casts, and spot fish, and decide which hook to throw, and deal with the wind-and look over your shoulder for bears once in a while-and think about anything else. You can't think about business. It's relaxing."
Fishing is also strategic, and not that unlike running a gold company-especially the part about those lurking bears. The big difference? When you're a gold company, the bears can be welcome. The worse the markets get, the more nervous investors are, and the more likely they are to turn to gold.
But the groundswell for gold has also created more investment options, in particular exchange-traded funds, which have fostered new competition for producers such as Goldcorp. Gold companies are also under constant pressure to find more stuff in the ground that will allow them to keep growing. That means either more exploration or buying other producers, or both. There's also the trick of keeping costs down.
What do you think of the prospects for gold? Are you betting hard on flight to safety? Or is it the next bubble -- fool's gold, as it were? Share your thoughts with our community of investors.
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For Jeannes, the challenge is not only living up to the dealmaking legends that came before him, but keeping investors interested in the Goldcorp story-no matter which direction the price of gold goes.
Jeannes was born and raised in Nevada, one of the richest gold-producing regions in the world, but it wasn't until he was getting ready to leave the state in his early 20s, headed for law school, that he first caught the bullion bug.
It was the late 1970s. As the price of gold started to soar, Jeannes's father, a long-time entrepreneur, started a small mine. From the moment he put on a hard hat, turned on the head lamp and travelled into the side of the mountain, the younger Jeannes was hooked.
Then, in January, 1980, gold hit a record $850 an ounce (about $2,000 adjusted for inflation). Suddenly, Jeannes found himself in the centre of a worldwide outbreak of gold fever. His childhood dream of Perry Mason-style adventures "catching bad guys" was quickly transformed into a career concerned with environmental assessments and project financing. When he graduated from law school three years later, albeit after watching gold plummet to the $300-to-$400 range and seeing his dad's business go belly up, Jeannes had become an expert in mining law. He practised the specialty for more than a decade back in his hometown of Reno, arranging financings and permits.
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But Jeannes grew tired of being the guy who came in at the end of every deal. Then, in 1995, gold miner Placer Dome Ltd. offered Jeannes a job as its in-house lawyer. Jeannes took the job, but on one condition: that he could move beyond legal work and into corporate development. That manoeuvre positioned him next to some of the titans of the industry who, over the next 15 years, would reshape the landscape through a series of mergers and acquisitions.
Jeannes worked at Placer Dome for four years, in San Francisco and later Vancouver, eventually becoming vice-president of its North American operations. In 1999, he joined Glamis Gold in Nevada, working his way up to the No. 2 spot as an executive vice-president. He played a key role in its acquisition of the Marlin mine in Guatemala and Mexico's El Sauzal mine and Peñasquito project, both of which are in Goldcorp's portfolio today. (Peñasquito is on track to become Goldcorp's flagship asset when it reaches full production early next year.) The sector's transformation began in earnest thanks to Wheaton River Minerals Ltd., a company created in 2001 by Telfer and mining financier Frank Giustra. In 2005, Telfer, then-CEO of Wheaton River, was trying to push through a friendly merger with McEwen's Goldcorp when Glamis CEO McArthur came along with a competing bid for Goldcorp. Beside McArthur was his right-hand man, Jeannes.
Wheaton River shareholders opted for Goldcorp, which left McArthur and Jeannes on the curb. But the dealmaking wasn't over yet. In late 2005, Barrick and Goldcorp unveiled intertwined deals that shook up the mining sector and brought Jeannes's career full circle. Barrick bought Placer Dome for $9.2-billion (U.S.) and sold some of Placer's Canadian assets to Goldcorp for $1.5-billion (U.S.). The deal would help increase Goldcorp's production by about 50 per cent to more than two million ounces annually.
The following year, Glamis and Goldcorp agreed to an $8.6-billion (U.S.) merger, creating what was then considered the world's No. 3 gold producer, with a combined market capitalization of more than $20-billion (U.S.). The deal also marked the start of a new relationship between Telfer and Jeannes.
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Things had become less harmonious between Telfer and McEwen, who had stepped down as Goldcorp's CEO after the Wheaton River deal. McEwen, who had remained Goldcorp's largest individual shareholder, opposed the Glamis-Goldcorp deal and tried unsuccessfully to get the court to force a shareholder vote.
Shortly after the Glamis-Goldcorp union was finalized, Telfer was named Goldcorp's chairman and McArthur its CEO, bringing Jeannes under his wing once again in the role of executive vice-president, corporate development. From that point on, Goldcorp continued to pursue an aggressive growth strategy, snapping up billions in assets and selling off parts of its business to help fund its project pipeline. One of those sales included its 49 per cent stake in Silver Wheaton Corp. (spun out from Wheaton River in 2004), exchanged for $1.56-billion, in what became one of the largest-ever stock sales in the Canadian mining industry. Goldcorp was on the fast track to growth.
Then, in late 2008, McArthur surprised investors by announcing he would retire from Goldcorp "for personal considerations." The CEO mantle hadn't worn well on a died-in-the-wool engineer who liked to keep his hand in. The company he oversaw boasted 4,000 employees distributed across 11 mines, four development projects and numerous exploration efforts-McArthur could barely find time to visit a mine site.
Within weeks, Jeannes was appointed president and CEO. Although the suddenness of his ascent was a surprise, this was the sort of job Jeannes had been set on ever since he started working with McArthur at Glamis. "I really wanted the chance to be the number-one guy, and run a mining company," Jeannes recalls. "I just never dreamed it would be the second-largest gold company in the world."
In times of rising gold prices, running a gold-producing company sounds pretty straightforward. That's particularly true if you subscribe to the "peak gold" theory, which holds that, even if gold prices do drop, they won't have far to fall, given shrinking global production and reserves. Scarcity makes a precious metal that much more precious.
Of course, most gold company chief executives are believers in the peak gold theory, and all are bullish on price. Jeannes's own faith in the rising price has been strengthened recently by Europe's growing debt crisis. More investors are turning to gold as a safe haven and a hedge against rising inflation. This sentiment, in turn, pushed gold to record-breaking heights beyond $1,200 in May.
Jeannes believes the price still has room to rise. "It's clear that gold has reasserted itself as an investment asset class," Jeannes says. "If you remember back to the 1970s, the common thinking was that any diversified portfolio should contain 5 per cent to 10 per cent gold. In the 1990s, if you mentioned gold, you were considered a dinosaur. With what's happened with the world financial crisis and the performance of gold as a safe-haven investment and strong portfolio diversifier, gold is definitely back."
Rising gold prices also add an urgency to dealmaking, a part of the job that hasn't come that easily for Jeannes. None of the acquisitions he has made since taking the top job have come without a fight.
Late last year, Goldcorp found itself in a bidding war with a joint-venture company called Minera Penmont S. de R.L. de C.V., owned by Newmont and Mexico's Fresnillo, over a junior miner called Canplats Resources Corp. Goldcorp eventually won the battle, but only after raising its offer twice, finally to $300-million. The move reflected Goldcorp's determination to gain control of the Canplats Camino Rojo project in Mexico, located near Goldcorp's Peñasquito mine.
Earlier this year, Goldcorp also beat out Barrick for a controlling interest in the El Morro gold-copper project in Chile. Goldcorp bought the 70 per cent stake from the Chilean arm of global mining titan Xstrata PLC by lending $463-million to a smaller company called New Gold, which had a right of first refusal. New Gold agreed to transfer the stake to Goldcorp in exchange for an additional payment of $50-million, while retaining its 30 per cent interest in the project. Barrick is contesting that deal in court, alleging it was executed illegally. The challenge hasn't stopped Goldcorp from moving ahead with the project, which it expects to reach production by 2013.
Jeannes also appears to be interested in buying gold explorer Osisko Mining Corp., owner of the Malartic gold deposit in Quebec, after overseeing Goldcorp's decision to buy just under 13 per cent of its shares last summer. Analysts believe it's only a matter of time before Goldcorp takes over the entire company.
A significant challenge for Jeannes is unloading assets that no longer fit with Goldcorp's high-growth, low-cost strategy, while not throwing away opportunities for growth down the road. With this balancing act in mind, Goldcorp made a deal in May to sell its Escobal silver deposit in Guatemala to a new company called Tahoe Resources Inc. As part of the $505-million (U.S.) deal, Goldcorp will receive a 40 per cent stake in Tahoe. Given the web of connections in Jeannes's career, it seems unsurprising that Tahoe is the creation of McArthur, his former boss.
Jeannes then made a near copycat sale in early June, selling the company's San Dimas gold-silver deposit in Mexico to explorer Mala Noche Resources for about $500-million, and taking a 30 per cent stake in the Vancouver-based explorer. The deal also marks the comeback of former Iamgold Corp. CEO Joseph Conway, who becomes Mala Noche's CEO. (During the M&A flurry earlier this decade, it was Conway's Iamgold that tried to take over Telfer's Wheaton River, before it merged with Goldcorp.) It's these types of strategic deals, not to mention that rising gold price, that have given many analysts the confidence to reinforce and, in some cases, upgrade Goldcorp's stock in recent months. While Jeannes is not a flamboyant dealmaker like his predecessors, that distinction could be the very thing they like about the company in 2010.
"Chuck is the right man for the job at the right time," says Ted Hirst, co-head of global investment banking at Canaccord Genuity, which has been an adviser to Goldcorp for the past several years. "He will take Goldcorp to the next level, with an approach that is both focused and reflective of his knowledge of the industry, something he has built over the years."
Others are attracted to Jeannes's "conservative, small-company mentality"-the description of Salman Partners analyst Haytham Hodaly. "It allows him to only look at accretive acquisitions rather than grow for the sake of growing."
Telfer, Goldcorp's CEO before the Glamis merger, says Jeannes is better at the job than he ever was. "He works to learn about everything in the company to a much greater extent than I ever would have." Telfer, now Goldcorp's chairman, also insists that he has a hands-off attitude, despite his long history of running gold companies. "I don't force decisions on him. I don't try to change his mind. As far as running the company, I am more than happy to leave it to him."
Both Jeannes and Telfer acknowledge separately that their relationship works largely because of their different backgrounds-Telfer as the company-builder and Jeannes as the day-to-day administration and operations guy. "I'm not a character, I'm pretty boring," Jeannes declares. "I think there's a difference between someone who, like Ian, has built companies his whole life. He has taken ideas and turned them into reality...I love the idea of finding ways to incrementally change our business."
Outside the office, the two share a passion for country music, in particular the duo Brooks & Dunn, now on its farewell tour after 20 years together. The band, one of the most successful duos in music history, will also go down as one of the few acts to actually go out on top-perhaps a study for Telfer and Jeannes as they try to put Goldcorp in the No. 1 spot.