Business Maverick

BUSINESS MAVERICK OP-ED

Mark Bristow and his Randgold team tick the right boxes to run the biggest gold merger ever

Mark Bristow and his Randgold team tick the right boxes to run the biggest gold merger ever
Mark Bristow addresses the panel discussion on reshaping the industry at the Africa Mining Indaba on February 9, 2016 at the Cape Town International Convention Centre in Cape Town, South Africa. (Photo by Gallo Images / Business Day / Trevor Samson)

Mining eats money like competitors eat frankfurters in a hot dog eating competition, writes former mining CEO Peter Flack. This fact and others means that mining executives need to be a different kind of CEO. So what makes a good mining executive? Dig in...

Before anyone raises the question, no one has suggested, hinted, let alone asked me to write this article. But it did enter my mind after reading about the contested acquisition of Newmont by Barrick in Daily Maverick and later in The Economist that one the key questions shareholders in these companies might want to ask is this: What makes a good mining executive?

Clearly, the Barrick shareholders asked and answered the question when they appointed Mark Bristow, CEO of the smaller Randgold Resources, which Barrick recently acquired for more than $6-billion, to take over the running of the merged group assisted by a number of other key Randgold Resources’ executives.

Randgold Resources was, without putting too fine a point on it, Bristow’s baby. He envisioned it. He and his team came up with the strategy. They went out and found the mineral deposits, raised the money, built the mines and listed the business on the London Stock Exchange. From a standing start some 20 years ago, that business was worth about R90-billion to Barrick and included, by all accounts, some of the most profitable and best-managed gold mines in Africa.

But I am getting ahead of myself. Clearly, executives who “inherit” an already successful mining group do not feature here. I mean what have they actually created, built, fixed or improved? And yet in my experience, they are often the ones with the most airs and graces, including their spouses and children who have done even less to warrant it and yet behave as if somehow they are important.

In a way, this is also a discussion of leadership and, having just read General Stanley McChrystal’s book on that vexed subject, I have no wish to delve further into the topic other than to say that a top mining executive needs to have a track record of leading. But more importantly, they need to have teams in their immediate present and past who have readily and enthusiastically followed them for a number of years, through good times and bad.

It’s only with their expert help and hard work, their motivated work ethic of always going that extra kilometre, that major, successful groups are built.

And the same goes for the mining executive himself. Honest, hard work is at the core of any success he might have, as opposed to being overly concerned with the trappings of success — personal PR consultants, personal speechwriters, large, flashy offices, use of company jets, invitations to the latest and greatest functions, conspicuous displays of wealth and privilege — you know what I mean. In mining, mostly still a man’s world, it is important not to lose the common touch, to retain the respect and commitment of, if not the man in the street, then the employee at the work face.

It is difficult to preach cost control when mining executives are more concerned with the company’s London apartment, trout fishing lodge, game ranch, company jet and/or other lavish perks. The old saying is true — the fish rots from the head — and, just as the examples of good managerial behaviour cascade downwards, so too does bad behaviour, only quicker in the latter case, as we have learnt only too well in this country.

Mining executives are slightly different from other executives in the sense that the major asset they work with is a wasting one. Once the minerals in the ore body have been mined out, the good Lord does not put them back a second time. So, they are involved in a constant process of recreating their main assets.

This requires an unusual degree of foresight, creativity, long-term strategic planning and skill in finding, evaluating and approving mining projects, plus a ruthless ability to discard those that do not completely fit the profile of the ones the company is best suited to exploit.

They need to be comfortable with getting out of their business clothes, hand-made shoes and Hermes ties, putting on those best suited to the bush and roughing it because, in my humble experience, God has shown a sense of humour when and where he created mineral deposits and they are hardly ever close to civilisation. A good mining executive must be comfortable without his creature comforts.

The mining executive needs to be prepared to get out there and touch, feel and see what is involved — the very essence of managing by walking around — and the opposite of pontificating in some rarefied, air-conditioned ivory tower. And more to the point, be able to evaluate what will be involved in the building of such a mine because, in those far off, inhospitable places, the mine will often need to provide its own water supply, electricity, roads, housing, hospital, maintenance and training facilities as well as a school for children of employees — in essence, everything that people will need to live and work on the mine.

It goes without saying that mining is a numbers game and it helps to be numerate but, like many specialist skills, it is not essential to have one or more of them as these can be hired. Although it does help that a top mining executive is trained in one of the key mining skills — mining engineering itself obviously, geology, metallurgy or civil, electrical or mechanical engineering — but again this is not essential as these skills are readily available, certainly in developed countries.

As such, I am not a believer that a mining executive has to have one of these skills and even less that the CEO of a mining company must be a miner as used to be the case in South Africa. What is critical, however, is that he must be the best possible professional manager.

Otherwise, the company can become like the school which habitually promotes the best teacher to the post of principal regardless of his/her managerial skills. Or the business which promotes the best salesman/woman to the role of sales manager. Often all that happens is you lose the best teacher/salesperson and end up with a poor manager in return as head of the operation.

Mining eats money like competitors eat frankfurters in a hot dog eating competition. To find a mineral deposit requires lots of expensive work — satellite imagery, chemical analysis using aircraft, soil analysis, rock sampling, trenching, drilling, mineral analysis or the purchase of projects from more junior mining and/or prospecting companies that have already conducted some or all of these tests. Then there is the bankable feasibility study essential to raise finance to build the mine, which usually takes years and costs millions of dollars. And then building the mine itself which, in turn, can cost tens of millions of dollars and take years to bring to commercial production, all before a cent is earned.

It is critical that a senior mining executive has a good knowledge of finance and a proven track record of being able to raise money from financial institutions and the public via stock market rights offers, stock exchange listings and the like. Among other things, this requires that he have an impeccable reputation for honesty, decency and fairness.

As an aside, in my humble opinion, all top mining executives have egos, some larger than others. Personally, I think this almost goes with the territory and I understand it to a degree. I mean, if they do not believe in themselves, how can they ask others to believe in them and entrust their careers and/or money to them and their promises?

If I have to choose one attribute above all others, however, when it comes to mining executives, it would be practical risk evaluation both from a safety aspect but also from a project perspective. Despite the fact that mining projects go through an intensive risk evaluation before they become an operating mine, including a bankable feasibility study which requires independent international experts to sign off on every aspect of the mining operation, mines still fail and, when they do, it can be catastrophic for the business.

Almost as importantly, too much time, effort and money are spent on mining projects that have no chance of becoming mines. This judgment, while parts of it can be learnt, is developed by extensive, practical, hands-on, hard work at the coal face (excuse the pun please) and by an innate sense of justice and the latter, unfortunately, cannot be learnt, in my humble opinion. It is a little like charisma. Some people have it naturally and others, while some may even be able to put on a good show, simply do not have it and especially do not have it when the chips are down.

So, when I look at Messrs Bristow and Goldberg, the CEOs of Barrick and Newmont, respectively, who would I have put my money on to run the merged group more effectively? Not a fair question as I do not know Mr Goldberg at all. But I would test his abilities against the above criteria. In the past, when I was Mr Bristow’s CEO, I had the opportunity to test his, time and again against all of them, and to say he passed with flying colours would be an understatement. And he did this in Africa in the harshest and most difficult of conditions — politically, economically, financially, geologically — he holds a doctorate in geology — and logistically or by whatever other criteria you may want to mention.

So, what role did these factors play in determining how the Barrick contested bid for Newmont ended? It could be argued, for example, that Barrick lost because they withdrew or were forced to withdraw their bid for Newmont. But something forced the parties back to the negotiating table and I suggest that was shareholder pressure, Newmont shareholder pressure. The result was that Barrick ended up with what I believe it always wanted — a joint venture of the two groups’ Nevada mines with Barrick owning the majority share in the JV and having management control.

And why was that? Surely because the shareholders of both large groups decided that Mr Bristow and his management team could do the job better. Last, and not insignificantly, it also means that Barrick remains the biggest gold mining group in the world. DM

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