Heroes

by Peter C. Newman

  ONE OF MUNK’S FAVOURITE VISITORS to his place at Klosters was Conrad Black, who dropped by annually while attending the Davos conference nearby. “I adored him,” Munk exclaims. “I know he’s pompous. When he was thirty, he behaved as if he was sixty-five. He is outrageous in every respect, a snob, right-wing, aggressive—all the wonderful things that we Canadians have given up being.” Munk was a guest at Black’s wedding to Barbara Amiel in London and decided to give them a grand present: their honeymoon. He knew they were flying to Australia anyway, where Conrad then owned newspapers, and Munk’s original partner, the elegant David Gilmour, ran a luxury private resort, called Wakaya, on one of the Fiji islands. Gilmour had lost his young daughter Erin (in an unsolved murder), who spent her last Christmas with him at Wakaya, and it was in her memory that he built the club. There are eight exquisitely designed and luxuriously appointed bureys (huts), one per couple, on the island’s beaches. Wakaya features four chefs to cater to the guests, fourteen sporting activities and every other imaginable luxury. Munk gave the newlyweds a week’s holiday there, but they almost didn’t make it.

  When the blissful couple got to the Fiji airport, after a gruelling twenty-hour flight, Conrad headed for the local VIP lounge, which didn’t exist, Fiji’s airport being furnished mainly with a few plastic chairs and squadrons of buzzing flies. “Conrad was angry,” Munk recalls, “because he had never not been treated as a VIP. The Fiji airport is no Heathrow. It’s a big room with natives trying to hustle you to buy candies. It was over a hundred degrees, and there was no air conditioning.” Finally, Gilmour’s plane arrived to take them to the resort, but it was a bumpy ride, and all that anyone remembered was Black muttering, “I’ll kill Munk.” But then the plane landed, the newlyweds got out and Conrad, though absolutely frazzled, spotted a familiar-looking figure leaning against a nearby palm tree. “There,” he said to Barbara. “That looks like a better-looking Tarzan version of Michael Heseltine!” (A leading British Conservative, Heseltine was then trade minister and rival for the succession of Margaret Thatcher.)

  “Well, it is,” Barbara replied, and Conrad felt that at last he was back in civilized company.

  “Conrad was a sight,” Gilmour recalls. “I couldn’t imagine him in short pants, but by the fourth day, he looked like he totally belonged. Actually, he looked like he owned the island. He went from totally cynical to totally happy, and though he and Barbara came for a week, they stayed twenty-two days.”

  ONE ATTRIBUTE MUNK prizes, with Black, is the ability to formulate long-term strategies and then stick to them. “Peter can pick up on his mental radar screen the essential priority, then identify and analyze it as the tip of the iceberg—or once, of the pyramid,” says his partner Gilmour. “His ability to think originally stems from the composition of the business experiences of his life.”

  Munk’s Hungarian background as the son of wealthy and divorced Jewish parents and the story of how he escaped the Nazi invasion when his grandfather bought a place on the last train out of Budapest bound for Switzerland have become familiar territory, best told in the highly evocative Kasztner’s Train by Anna Porter. “I don’t really consider myself Hungarian; I feel much closer to being Swiss,” he says. After the end of the Second World War, he followed two of his relatives to Toronto and studied electrical engineering at the University of Toronto’s postwar Ajax campus. The details of how he and his friend David Gilmour launched Clairtone (with $3,000 of borrowed money) as North America’s first manufacturer of top-quality, solid-state radio/record player consoles have been told many times. Less familiar is the profound psychological impact that venture had on his future. “It was my first love, my first infatuation with the romance of business,” he recalls. “It was unrequited, it was immensely uncompleted, and maybe that’s why it made such a major impression on me. But it was an experience that formed the foundation for everything that I have accomplished in my life.”

  Clairtone went from making four high-fidelity sets in 1958 to selling a hundred thousand units a decade later, winning worldwide recognition along the way. Frank Sinatra ordered a unit, as did Hugh Hefner, Sean Connery and Dizzy Gillespie. “Listen to Sinatra on Clairtone stereo. Sinatra does,” went the ads. The most fashionable New York department stores sold the units, while sound-conscious Japanese and German consumers recognized the sets as the world’s best. Clairtone was hailed by the Canadian government as the leading example of what imaginative industrialists could accomplish in a country then better known for its fur, lumber and iron-ore exports.

  As their company grew, the partners were so determined to keep expanding ahead of the market that they decided to establish a new, modern factory to manufacture all the components of their sets under one roof. They were too severely undercapitalized to finance a plant on their own, so they applied for a grant from the government of the job-hungry province of Nova Scotia to subsidize its construction. The inexperience of the local labour force resulted in heavy cost overruns, but worst of all, the government insisted that the firm move quickly into the colour- television market, which was then supposed to be opening up. The expected boom was premature, and most consumers held off buying their sets until prices dropped, while the Clairtone units suffered crippling technical and marketing problems. When losses mounted to unacceptable levels, the Nova Scotian politicians fired Munk and Gilmour. The government took over the operation, and in two short years, ran it into the ground. Meanwhile, the two young entrepreneurs had lost their money and their reputations. They settled an insider-trading charge out of court and felt they had to leave the country.

  “It was the classic impossible dream,” Munk later recalled. “Everything I’ve done afterward has been child’s play compared with Clairtone. My ego was destroyed. What I learned was never to give away your destiny. Don’t put control into the hands of a body that doesn’t have interests aligned with your own.”

  That searing experience is still never far from Munk’s thoughts. In 1996, for example, when both Barrick and Horsham, the holding company that had recently bought Trizec, were resounding successes, the Wall Street Journal decided to publish a Munk profile.

  “Hello, Mr. Munk. Some analysts say that they don’t fully trust Horsham,” the Journal reporter started off her interview.

  “What would you like me to say, madam?”

  “Well, what is your comment?”

  “I have no comment. If they don’t trust it, they must not buy it. Only those who trust it should buy it.”

  “Well, some people talk about your record in Clairtone.”

  “Madam, you know I was fired from Clairtone in 1967. That is a generation ago. In the meantime, I started Barrick, which has been the best-performing stock on the New York Stock Exchange for two of the past five years.”

  “But how do you feel about Clairtone?”

  “I’m exceptionally proud of it. For nine years Clairtone represented a unique Canadian achievement. Both in design and in technology, we won the highest accolades. Never have Canadians produced a product with such sophistication as this. It failed, and to the extent that I was the founder and CEO, I accept all the responsibility, but you know, I hope I have learned from my mistakes. That’s all I have to say to you.”

  FOLLOWING THE CLAIRTONE DISASTER, Munk and Gilmour went into purgatory halfway around the world and spent the next decade in Fiji, where they built up Southern Pacific Hotel Corporation, a remarkable chain of fifty-four resorts that fetched an impressive $128 million when they sold it in 1981. Along the way, Munk had picked up another partner, the Arab arms dealer Adnan Khashoggi. At first he was a welcome source of investment funds, but his personal habits soon got on Munk’s nerves. There were reports of his cavorting simultaneously with ten prostitutes and of his regularly ferrying Playboy centrefolds to his Spanish villa aboard one of his four private jets. He had just taken delivery of the largest and most luxurious private yacht ever built when Munk visited him in Monaco. The ship had every imaginable luxury, including a compu
terized deep freeze, with frozen animal carcasses hanging from hooks. Depending on the number of guests Khashoggi was bringing home, the chef could punch, say, A-32 into his computer, which would produce an eighty-pound lamb, or B-41, which would provide half a side of beef. “I sat with Adnan and Melanie at the ship’s launching party, and as he took us into his bedroom, which was four times bigger than my living room at home, I noticed on his coffee table a glass box, and inside was a model of a huge yacht.

  “‘Is this a model of the Nabila?’—which is the boat we were on, I asked him.

  “‘No,’ he said, ‘it’s my new one!’ (That yacht turned out to be half the length of the QE2.)

  “‘But you’ve just finished paying $35 million for this one. Adnan, why do you need a new boat? Is there something wrong with this one?’

  “‘No, but you know I like growing.’

  “‘Adnan, you’ve got the world’s biggest yacht. You just took possession, you just paid for it. Why on earth would you spend your time on designing a bigger boat?’

  “When his helicopter took us away, I said to Melanie, ‘There’s going to be big trouble’ because this was sheer insanity.” (Khashoggi later ended up in a Swiss jail, and Munk paid his bail.)

  But Khashoggi remained a partner for one more venture. In 1974 Munk and Gilmour decided to erect the ultimate luxury resort. With a projected final price of US$400 million, it was to stretch over ten thousand acres and be built on the banks of the Nile in the shadow of the great pyramids. These elaborate plans were enthusiastically approved by Egypt’s then-president, Anwar Sadat, who later backed away from his commitment. It took nearly twenty years before the courts vindicated Munk and Gilmour with appropriate payment of damages.

  When Munk and Melanie arrived back in Canada in the fall of 1979, they were not exactly welcomed. He went, brown fedora in hand, calling on the Canadian Establishment, but they turned up their noses. “Most of Bay Street,” he recalls, “treated me like a fugitive and a loser. Not a word of my achievements, which had been forgotten by all except the very few who had been a part of them. I had made it big in the South Pacific, but back home I was still a pariah. I remember being invited to have lunch in the boardroom of McLeod Young Weir, and on the appointed morning, they phoned and said the directors were all busy and couldn’t do it. Despite my requests, Wood Gundy never did talk to me. I knew that if I wanted to be at peace with myself and build an international business presence, my home port must be Toronto. That was where I had to clear my name.”

  AFTER A FALSE START in the oil business, he decided to go into gold mining and established Barrick. His first major purchase was the Camflo gold mine, which had a tiny producing shaft thirteen kilometres west of Val d’Or in northern Quebec. The cost of the acquisition was to pay off the $100 million loan Camflo’s former proprietors owed the Royal Bank. The Royal, then headquartered in Montreal, wouldn’t even talk to Munk about it, after letting him wait for an hour past his appointment time. He had to get his friend Joe Rotman to fly to Montreal to vouch for him before they agreed and gave him only a year to repay what then seemed like an enormous amount. (In 1989, after Munk agreed to include the Royal Bank in the largest single gold loan ever— US$420 million—senior vice-president Brian Gregson gave a lunch for Monk at the bank’s headquarters. The visitor took all of twenty seconds to remind the Royal executive of the Camflo incident, an admonition to which Gregson replied, “We know what you’re talking about, but I just want to tell you that we would love to do this business with you; we would like to be amongst your lead bankers. We checked on the behaviour of the bank and you in connection with the Camflo deal and would like to say that, despite the fact that we work here for the Royal Bank, between the two of us, you were much more of a gentleman. “)

  How Munk raised these funds from a standing start—allowing him to move into the big time—may well have been his greatest achievement. Camflo was insolvent at the time, though its stock was still listed on the TSE at $1.75. By persuading fifty investors to pay $2.10 each for Camflo treasury shares, which they could have bought for 35$$ less on the open market, he closed the deal and bought the company. Even in retrospect, that seems the most questionable of bargains, but those investors—and the lucky few who bought Barrick shares from its modest beginnings—exhibited blind faith in Munk, which was generously repaid.

  Along with Camflo’s modest cash flow, Munk obtained the services of its three most important executives, mine manager Bob Smith and geologists Brian Meikle and Alan Hill. They became his key executives in the drive for gold. Smith, a compact, muscular, hard-rock miner (who insisted that his favourite girlfriends were Lady Luck and Mother Nature) became president of Barrick in 1985 and was the mining brains of the outfit. The industry was then in deep trouble, but Munk was convinced that European pension-fund managers, who always maintained some gold shares in their portfolios, would have to switch to North America because of mounting political unrest in their previous favourite investment region, South Africa.

  One of the benefits of buying Camflo was its 26 percent interest in the Pinson mine, just east of Reno, which led the Barrick team to Nevada. The saga of the Goldstrike deposit, which was the luckiest break that transformed Munk into a financial powerhouse, had none of the romance usually associated with mining. There was no grizzled prospector, fluent in authentic western gibberish, who struck it rich, no platoon of hardy miners drilling some dimly lit mine slope to seek the motherlode. The discovery of Goldstrike took place not in a blinding flash of recognition, but in a slow, thirty-year process of advance and retreat, faith and doubt, opportunities seized and missed, careful diamond drilling and meticulous assaying. Barrick—the ultimate winner—had nothing to do with discovering the property, but everything to do with making it economically feasible and fully exploiting its potential. Located on 6,870 acres at the north end of the Tuscarora Spur in Nevada’s Eureka County, an hour’s drive from Elko, Goldstrike turned out to be North America’s richest gold deposit.

  Although the first serious exploration of the site dated back to 1962—it had been staked by several companies, and there was a small producing mine on the site—it wasn’t until Smith and his Barrick crew arrived in 1987 that the full dimensions of its deposit became clear. Barrick had purchased the mine for US$62 million, mainly on the hunch of the Camflo trio. The great strike occurred on March 24, 1987. Smith was in Florida on holiday when Meikle telephoned with some unbelievable news. “Bob,” he said, “we’ve pulled a hell of a hole. It’s 600 feet, averaging 0.36 ounces of gold per ton!”

  “Brian, that’s bullshit,” Smith replied. “Some son of a bitch salted the core. We better go back, resample the whole damn thing and drill another hole.” Smith didn’t dare tell Munk because the news seemed too good to be true. The second hole showed even better results. Eventually, eleven diamond drills were honeycombing Goldstrike’s bottom layers, and one 450- foot length of core averaged 1.089 ounces of gold per ton. For an amazing fifteen months, the drill crews were confirming a million ounces of new gold every thirty days. Even after more than a decade of mining, the property (with 10 million ounces already sold) still contains gold reserves of 29.3 million ounces, the largest gold cache in North America.

  The Barrick miracle won the acceptance on Bay Street that had eluded Munk for such a torturously long time. “For years,” wrote Ira Gluskin in the Financial Times, “I used to hear that there was a Peter Munk discount. It was only four years ago that Barrick was at a discount to its peers because of the alleged moral deficiencies of Mr. Munk, incurred in the year 8 B.C. Today, Barrick sells at a premium, and the very same Peter Munk is a national hero and credit to his race, creed and lineage.”

  Munk’s other contribution to the industry was hedging. Because he had put all his own money into Barrick and couldn’t afford to lose it, he devised a scheme that made gold mining independent of gold prices. It involved selling the shiny stuff three years forward to banks willing to be locked into their loan positions. In
the summer of 1998, when gold was selling under US$300 an ounce, Munk was getting more than $400 and had reduced costs to below $150, except at his Pierina mine in Peru, which was getting ready to pour gold at an unbelievable $50 an ounce. That prospect, originally owned by Arequipa Resources, was purchased in 1996 for $1.1 billion from Catherine McLeod, a young Vancouver mine finder, who personally made $19 million on the deal. Two years earlier, Munk paid $2.1 billion for Lac Minerals, which included some underdeveloped mines in Chile. And he bought the sad remnants of Calgary’s Trizec Corporation, once Canada’s prime commercial real estate company.