Goldcorp's Ian Telfer rode the gold highs but exits on a low note

Section:

'Peak gold' makes no difference when the mining industry doesn't mind that there's no 'peak paper.'

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By Gabriel Friedman
National Post, Toronto
Monday, April 8, 2019

After helping to build what was once the most valuable gold mining company in the world, Goldcorp Inc. chairman Ian Telfer is planning to exit on a low-note -- albeit $12 million richer.

Earlier this year, Telfer cut a deal to sell Goldcorp for US$10 billion -- a 78 per cent hair cut from its peak valuation of US$45 billion back in 2011 when gold prices were soaring.

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On Thursday, in a sign of how far the company has fallen, Goldcorp shareholders voted nearly unanimously to approve the deal. Proxy advisors have recommended Newmont shareholders do the same when they vote April 11.

That means Telfer, 73, who does not hold a position at any other gold company, could officially be jobless next week, having opted to take a $12 million severance pay out despite shareholder objections, and to give up the chance to serve as Newmont's deputy chairman.

If he does leave the gold industry -- although some friends and acquaintances doubt he will sit still in retirement -- the departure comes at a time when Telfer believes the gold mining industry is headed for a period of decline, as he made clear in interviews with the Financial Post conducted during the past year including an extended conversation last May before his induction into the Canadian Business Hall of Fame.

Convinced that the major gold reserves in the world all have been discovered and the industry must shrink, Telfer has been bracing for a wave of consolidation. Unfortunately, it arrived last year as his company was trading at its lowest point in decades.

"One thing you learn in our business, is sometimes they put you in the sunshine for awhile, sometimes they put you in the shade," he said last May. "Right now we're in the shade."

At the time, Goldcorp had been riding a years-long decline in its share price from above $50 in 2011 down to $13.47 in May 2018, and the worst hadn't even come.

Last autumn, after reporting disappointing third-quarter results including higher than expected costs, Goldcorp shares went on to drop an additional nearly 20 per cent, to less than $9. Since 2017 it has had negative free cash flows, according to Morningstar Research.

By the beginning of the year, the whole company was being sold to Newmont Mining for US$10 billion, whose chief executive Gary Goldberg would criticize Goldcorp's strategy as one focused on "volume" rather than profits.

If the Goldcorp sales goes through, it forms a remarkable ending for a company that as recently as 2014 was worth more than either Newmont or Barrick Gold Corp. -- currently the two largest gold companies in the world.

In 2001, Telfer started Wheaton River Minerals, the company that eventually became Goldcorp in 2005. The combined company, which took the name Goldcorp, hit a high point in September 2011 when its market cap exploded to US$45 billion -- a value that then exceeded Newmont's US$32.5 billion market cap.

That year, gold prices peaked above US$1,800 per ounce. These days, gold has been trading around US$1,300 per ounce and has not gone above US$1,400 since 2014.

Telfer is quick to point out that nearly all gold companies that were around in 2011 have declined by most measures since the price of gold dropped. But compared to Barrick and Newmont, his company has recovered the least -- amid operational challenges, rising costs and questions about how it will maintain its pipeline of gold production.

The way forward seemed to puzzle even Telfer.

"We started this company from scratch and a few years ago we were bigger than even Barrick," Telfer said last May. "We've now dropped back behind Barrick and behind Newmont by a fair bit."

He added that the entire industry has changed in one key way: "It's shrinking for the first time in my life, and I've been in it almost 40 years."

He's not alone in seeing the industry decline. At the Prospectors and Developers Association of Canada conference earlier this year, Mark Ferguson of S&P Global Market Intelligence said there's been a steady decline in gold grades since 2012, and a "dearth of really big deposits" discovered.

Telfer became convinced that when any industry shrinks, consolidation always comes next.

So last September, after Barrick Gold announced its US$6 billion acquisition of Randgold Resources, in a deal that was roundly cheered by the investment community, Telfer said he felt pressure to find a merger partner for Goldcorp. He compared it to a game of musical chairs, in which fairly quickly, the handful of other eligible companies would link up with someone and the last company would be stranded.

Originally, Telfer spoke with Australia's Newcrest about a no-premium deal late last year.

But in a one-month time span that began in early December, Newmont negotiated to buy Goldcorp in a deal primarily structured as a share exchange that gave Goldcorp a 17 per cent premium on its then-trading price.

That deal almost fell through when Barrick chief executive Mark Bristow made a hostile US$17.8 billion bid for Newmont, which he conditioned upon the cancellation of the Goldcorp buyout -- whose assets he disparaged.

Instead, Barrick dropped its bid for Newmont last month.

Telfer says he likes to golf, and read about business, and doesn't have any business plans beyond his role as a director at Renaissance Oil Corp. -- a small onshore energy producer in Mexico with a market capitalization of less than US$40 million.

Neil Woodyer, chief executive of Leagold Inc. and a close business associate of Telfer, said his friend has always been able to parlay one job into the next, starting out looking for gold in Brazil and Venezuela, and finally moving to the global stage with Goldcorp.

Now, the well is dry, but Woodyer said he doubts Telfer will retire quietly.

"He'll pop up in some sort of capacity, maybe in a chairman capacity," said Woodyer.

In interviews, Telfer has said he doesn't pay attention to other commodities and believes gold is poised for a massive run up, much like the spike rise he said he predicted in 2001, which motivated him to start the company that became Goldcorp.

In a short film made before his induction into the Canadian Business Hall of Fame, Telfer described himself as a gold bug, fascinated by its "mythic qualities." He said he doesn't fear failure and that he likes to create businesses.

"The financial markets love a comeback story," Telfer said in the film. "So look forward to your comeback story."

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