Munk's glittering gamble

D'ARCY JENISH January 12 1987

Munk's glittering gamble

D'ARCY JENISH January 12 1987

Munk's glittering gamble



Peter Munk, 59, is working on his third fortune. In the 1960s the Hungarian-born, Toronto-based Munk poured his energy into Clairtone Sound Corp., a stereo manufacturing venture. Then, in the 1970s he developed a lucrative chain of hotels in the South Pacific. His latest obsession: all that glitters. In just two years he has transformed American Barrick Resources Corp. of Toronto from a small, moneylosing company into one of North America’s top gold producers. Now, there are strong indications that Munk has crafted a strategy, financed by what he told Maclean's Senior Contributing Editor Peter C. Newman is a $2-billion London syndicate, to become a major force in the gold market.

In an opening move last fall, American Barrick purchased 4.9 per cent of Consolidated Gold Fields Corp., a $2.7billion British conglomerate which owns interests in mines producing 20 per cent of South Africa’s gold annually. Market

analysts speculate that Munk’s immediate target is a pair of new mines that ConsGold owns in the United States. But the possibility has emerged that to get them he might be forced to buy ConsGold and sell off the rest of its assets.

Munk and his two closest associates, David Gilmour, 55, and William Birchall, 44, have divulged only those details required by securities regulators. In fact, because they strategically purchased just less than five per cent of ConsGold, they do not have to disclose their full intentions under British laws. Consequently, company officials and investment analysts have been left to speculate on American Barrick’s next move. Some contend that because Barrick’s initial move has driven up ConsGold share prices, Munk’s company could now simply reap a profit by selling its 4.9-per-cent stake. Others maintain that ConsGold is vulnerable to a takeover and breakup by Munk because its shareholders are disillusioned with

the racial turmoil in South Africa. And ConsGold’s dividends have been flat since 1983, said Andrew Quinn, a financial analyst with James Capel & Co., the London-based firm that advises American Barrick.

But ConsGold management and Anglo-American Gold Corp. of South Africa Ltd., which owns 28 per cent of ConsGold through an associated company, have indicated that they would battle any takeover attempt. They asked British securities regulators to investigate the Barrick purchase. And then late last month the firm decided that it would advance the date of a new share issue— a move which would slow Munk by further dispersing ownership.

Fuelling American Barrick’s strategy is Munk’s apocalyptic view of the current political unrest in South Africa. “If you want to attack South Africa economically, as many people do,” he told Newman, “you don’t do it with sanctions on wine and travel, but on the flow of gold.” And if there is a disruption in the

supply of South African gold, he pointed out, that would vastly increase the value of North American reserves—including American Barrick’s. Clearly, Munk’s company intends to be well-placed for any such development. Said Birchall: “Our ultimate goal is to make American Barrick a premier gold producer.”

While moving against ConsGold, Munk and his associates are at the same time preparing to protect American Barrick from a possible counterattack by either ConsGold or Anglo-American, which is controlled by the wealthy and powerful Oppenheimer family of Johannesburg. They have devised a complex corporate shuffle which will see 30 per

cent of American Barrick shares transferred later this month to a former subsidiary called United Siscoe Mines Inc. Siscoe, to be renamed Horsham Corp., will be controlled by Munk, with 63 per cent, and associates such as wealthy Saudi Essam Khashoggi, who has 24 per cent. Said Gilmour: “By organizing the controlling shareholders into one entity, it would make life very difficult for anybody trying to take over Barrick.”

Munk and Gilmour first surged to prominence as cofounders in 1958 of Clairtone Sound Corp. The company’s stereos were carried by such prominent New York retailers as Bloomingdale’s and Macy’s. In 1966 the partners were lured to Nova Scotia with lucrative government subsidies, but in 1967, after a $6.7-million loss, Munk and Gilmour were ousted. After further losses, the government closed the firm in 1971.

The two partners switched their development interests to hotels, moved to

London and hired British native Birchall to raise the necessary capital. Gilmour says that runaway inflation in the 1970s made real estate an obvious investment, and through developments and acquisitions such as Travelodge Australia Ltd. they eventually presided over 58 hotels in Fiji, Australia and throughout the South Pacific region. In the mid-1970s, during the development of a resort complex in Egypt, the pair cemented a valuable relationship with Adnan Khashoggi, who presided over a huge financial empire (and who recently has been linked to the Iran arms scandal), and Prince Nawaf, a member of the Saudi royal family. Reports circulat-

ed last month that a Khashoggi family interest in American Barrick had been pledged as security for an arms deal loan. But in fact the Khashoggi involvement, through Adnan’s brother Essam, is in Horsham, not directly in Barrick.

In 1981 Munk and his partners sold the South Pacific hotels for $180 million, and since mid-1983 the trio has been buying gold mines. American Barrick either owns or holds an interest in six mines located in Northern Ontario, Quebec, Utah, Nevada and Alaska. The mines produced 130,700 ounces of gold in the first six months of 1986, and earned a $7-million profit, compared with a loss of $220,000 in the first half of 1985. A new mine, located about 50 km from Kirkland Lake in Northern Ontario, will begin producing in 1988.

The company, said Birchall, is now looking for more acquisitions and has set its sights on two new ConsGold mines in the United States: a California

property called Mesquite, producing up to 150,000 ounces of gold a year, and Chimney Creek in Nevada, which will begin turning out some 170,000 ounces annually in the spring of 1989.

But taking the new mines from ConsGold will not be easy. European newspapers have reported that ConsGold chairman Rudolph Agnew was angered by the attempt to buy the two prize mines, which ConsGold badly needs to boost its profits. As well, the sheer size of ConsGold is daunting. It is a vast company, employing 100,000 people through subsidiaries and associated companies around the world. It owns 48 per cent of Gold Fields of South Africa Ltd., which has interests in six major gold mines in that country.

In its initial attack on the giant, American Barrick paid $123 million for 9.7 million ConsGold shares, and financed it through a $43-million public share offering, a $69-million bond offering of interest-bearing notes, and retained earnings. In addition, the company has lined up $2 billion and, said Gilmour, is ready to use it.

Clearly, one option would be to take a quick profit by reselling the shares. ConsGold share prices surged to about $13.40 in December from $8.53 in July. But if Munk is indeed launching an allout takeover bid, it could be successful, said Capel & Co.’s Quinn. Some European pension-fund managers, he said, would gladly dump their ConsGold shares because they have been trading below book value, and the dividend that the firm pays on its shares has not increased in a number of years. Others are being pressured by their trustees to abandon investments in South Africa.

In the meantime, ConsGold has apparently begun to defend itself against Munk’s move. It announced in late December that it will offer the public a chance to buy into Gold Fields Mining Corp., the U.S. subsidiary which owns the Chimney Creek and Mesquite mines. London analysts had predicted that the conglomerate would wait until the spring of 1988, when Chimney Creek is in production. Instead, ConsGold has decided to float the offering as early as next spring. As a result, some analysts concluded that ConsGold is trying to create another hurdle by dispersing the shares widely, in that way making it more difficult for Barrick to acquire controlling interest. For his part, Gilmour would only say that he and Munk had embarked on the most ambitious endeavor of their careers. “American Barrick is what we eat, sleep and breathe,” said Gilmour.