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TORONTO (Reuters) - Peter Munk has long driven the agenda for Barrick Gold Corp, the company he formed in 1983 and built into the world's largest gold producer, but recent missteps have raised questions about the leadership of a man once seen as a visionary in the industry.
Munk, who owns a stake of less than a quarter of a percent in the company, still steers Barrick's strategy from his position as chairman, and he is now attempting to shore up the miner's position. But some investors, seizing on what they view as misguided decisions and problems at several mines, are questioning both the company's direction, and Munk's role.
In the last two years, gold miners across the globe have been stung by falling bullion prices and a surge in costs. Barrick has fared worse than its rivals, outlining about $13 billion in writedowns this year alone.
Its share price is down nearly 65 percent in two years, outpacing a 50 percent drop in the NYSE Arca Gold Bugs Index, and a 26 percent drop in the price of spot gold.
While environmental woes at its Pascua-Lama gold-mining project, high in the Andes, have been the biggest drag on Barrick's share price, investors have taken the most issue with its disappointing push into copper and with a proposal to give Munk's heir apparent, co-chairman John Thornton, an unusually large, $11.9 million signing bonus.
In interviews with Reuters, five Barrick insiders said Munk himself played a pivotal role in both these decisions.
Neither Munk nor Thornton would comment for this story, and Barrick declined to comment on Munk's role in the decisions.
But the high-level insiders, who asked not to be named as they are not authorized to discuss such matters with media, describe a company where Munk - an entrepreneur, real estate mogul and avid skier - has a powerful influence in every major board decision.
"The level of deference shown to Peter Munk within Barrick and its boardroom is surprising," said one source familiar with Barrick's boardroom discussions.
Only seven of Barrick's 13 directors are independent, a ratio that Barrick says meets New York Stock Exchange rules. But proxy advisory firm Glass Lewis says the board lacks two-thirds independence - a best practice for big, widely held companies.
"It would be nice if we could get a feeling that the board of directors is acting for all shareholders, because there is a feeling, I think, that we are dealing with a little bit of a fiefdom," said Caesar Bryan, a portfolio manager at Gabelli, which owns some 2.9 million shares in Barrick Gold. "The whole corporate governance and board situation is a little disconcerting."
The insiders all praised Munk, who was born in Hungary and escaped the Nazis as a teenager, for his achievement in building Barrick and the tens of millions of dollars he has donated for healthcare and education in Toronto, where the company is based.
However, they criticized some of his more recent decisions, especially Barrick's C$7.3 billion ($7.03 billion) takeover of Africa-focused copper miner Equinox in 2011.
Three of the sources said that deal stretched Barrick just as it was developing the huge Pascua-Lama project on the border of Argentina and Chile, and the Pueblo Viejo gold-mining project in the Dominican Republic.
The Equinox takeover triggered the initial slide in Barrick's share price. Many investors were disenchanted: Stocks of gold miners typically attract higher multiples than those of base metal miners, and Barrick has for years marketed itself as the ideal vehicle for gold bugs.
But three of the sources said Munk's push for Equinox came as no surprise, given that the he had long sought to transform Barrick into a big diversified miner in the mold of Rio Tinto Ltd or BHP Billiton Ltd.
In particular, Munk has wanted to boost Barrick's exposure to copper, said the insiders, adding that his itch for copper dated back to the late 1990s, when he pushed management several times to look at U.S. mining giant Freeport McMoRan Copper & Gold Inc - an initiative code-named Project Orange.
But successive management teams repeatedly steered Munk away from a bid and Freeport became too big a target after it bought Phelps Dodge for $25.9 billion in 2007.
Refocusing on gold, Barrick then twice reached deals to buy No. 2 gold miner, Newmont Mining, first in 2008 and later in 2010, the sources said. Each time Munk scrapped the deal late in the game, largely due to differences around how the combined entity would be led.
At other times, the sources said, Munk pushed management to look at the likes of Canadian diversified miner Teck Resources, and Potash Corp, the world's top fertilizer maker. Neither deal panned out.
Barrick declined to comment on the deals it has explored, as did spokesmen for Freeport, Newmont, Teck and Potash Corp.
When Equinox came on the block, four insiders said Munk seized on the deal as a step toward his goal of diversification. At a time when several copper miners were up for sale, Barrick outbid a Chinese state-backed entity to take over Equinox.
Barrick's management team attempted to warn Munk against buying Equinox, noting that Barrick had spent months trying to reduce risk in Africa by spinning its mines there into a separate operation called African Barrick Gold PLC, the sources said. The board approval of the deal is illustrative of Munk's sway in the boardroom, they said.
Two sources said the final board approval came during a 20-minute conference call with minimal discussion. Asked for comment, Barrick said its board discussed the deal extensively in the weeks before the decision.
Yet the deal quickly raised concerns among investors, starting with the price Barrick shelled out for Equinox.
"Outbidding the Chinese on a copper asset in Africa is your first sign that you've struck a bad deal," said one insider, who noted that Chinese companies are very comfortable operating in Africa and own a wide array of projects across the continent.
The price of copper has fallen 23 percent since the deal, and the transaction has not lived up to its billing. Barrick has halted an expansion at the Lumwana copper mine in Zambia - the crown jewel of the Equinox portfolio - and delayed the Saudi Arabia Jabal Sayid copper project, also acquired via the deal.
To be sure, Munk's gamble may still pay off in the long run, given looming supply issues as China's and other emerging economies develop.
"The Earth's endowment with high grade copper deposits is finite," says Bernstein Research analyst Paul Gait. "It is only a question of when, not if, that limitation leads to higher real copper prices."
Aaron Regent, Barrick's chief executive at the time of the Equinox deal, was replaced by Jamie Sokalsky in June 2012.
Regent declined an interview request.
Barrick has lately begun to right the ship, say two sources, noting that Thornton, formerly a well-regarded Goldman Sachs executive, is taking a more hands-on role as Barrick's co-chairman. Recently he traveled with management to Argentina before Barrick outlined a decision to slow work at the expensive Pascua-Lama project, a move that will help the company preserve capital over the next few years.
Ahead of Barrick's annual meeting in April, proxy advisory firm Glass Lewis told investors not to vote for three directors: Anthony Munk, Peter Munk's son and a board member for 17 years; William Birchall, a member for 29 years; and former Canadian Prime Minister Brian Mulroney, who has been a board member since 1993.
The firm advised against Anthony Munk and Birchall, saying it was concerned about the level of board independence, and it argued that Mulroney currently sits on too many boards. All three were elected, but shareholders voted against Barrick's non-binding proposal on executive compensation, in particular an $11.9 million signing bonus that was paid to Thornton.
That revolt was led by some of Canada's top pension funds, a group that rarely goes public with their disapproval, and 85 percent of the vote was cast against Barrick on the proposal. Representatives of the pension funds declined to comment.
But a source at one of the funds said Barrick has since vowed to add three new independent members to its board. The new nominees are likely to have experience in the mining sector to tackle a lack of sector expertise on its board, said the source.
Barrick declined to comment on any plans to add independent board members.
($1 = 1.0387 Canadian dollars)
Additional reporting by Clara Ferreira-Marques and Julie Gordon; Editing by Janet Guttsman, Martin Howell, Frank McGurty and Leslie Gevirtz