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An awkward silence from Frank Giustra
December 01 2008 | News Articles | Globe and Mail
An awkward silence from Frank Giustra
Amid slowdown, deal maker looks for signs of hope
ANDY HOFFMAN
From Monday’s Globe and Mail
December 1, 2008 at 4:19 AM EST
Frank Giustra has two passions in his professional life; orchestrating mining deals and raising money for his charitable foundation with former U.S. president Bill Clinton. He’s not doing much of either these days.
The global credit crisis and the meltdown in the metals sector has decimated the market for new resource plays, effectively shutting down the Vancouver financier’s deal-making. His friends and colleagues in the sector, who helped him win commitments of more than $300-million (U.S.) for the Clinton Giustra Sustainable Growth Initiative at the height of the commodities boom last year, are suddenly shutting mines, shelving projects and pinching pennies.
With the bulk of his holdings tied to mining stocks, Mr. Giustra understands their pain. His personal wealth has taken a massive hit.
Has his net worth been cut in half?
“That would be generous,” he says with a laugh.
His foundation, which aims to create sustainable growth programs and alleviate poverty in areas of the world where mining companies operate, still has a sizable cash cushion. He says it is well-funded to carry through on the $45-million in commitments it has already made to programs in Peru, Colombia and Mexico.
The real question is how it will continue to tap the resource sector to fund new programs amid what is expected to be a deep recession. With mining companies slashing costs and laying off workers, Mr. Giustra is bracing for widespread charitable belt-tightening.
“Most mining companies, like everybody else on the planet, are cutting back their spending. I haven’t seen it yet, but I wouldn’t be surprised if there were cutbacks in the area of corporate social responsibility. That’s going to be something we’ll have to face,” he said.
Inspired by a personal friendship and the charitable work of Mr. Clinton, the mining tycoon has said he has found satisfaction in philanthropy following a two-decade career in mining finance.
He donated $31-million to Mr. Clinton’s foundation in 2006 and teamed with the former president to launch the charitable Clinton Giustra fund in the summer of 2007.
To kick-start the fundraising, Mr. Giustra pledged $100-million to the new foundation as well as half of his future earnings.
Of course, with a dead deal market, he isn’t generating much new revenue for the charity these days. However, he said he sold all of his oil stocks to fund his cash pledge near the time crude was fetching record prices above $140 a barrel.
“I bailed out of every single oil share. That was to fund my foundation and create the cash cushion. Thankfully I did that, or otherwise it would be a different story,” he said.
Yet there could be further constraints on the foundation if Hillary Clinton is, as expected, named secretary of state to the Barack Obama administration.
As the spouse of a senior White House official, Mr. Clinton’s charitable dealings could be limited to avoid conflicts or the appearance of conflicts.
“I’m going to wait to see what the rules are going to be in terms of our partnership and then take it from there. I don’t want to speculate because I don’t know what changes are going to take place. But I’m sure there will be changes,” Mr. Giustra said.
Mr. Clinton and Mr. Giustra’s partnership has already created controversy.
The duo came under scrutiny after it was revealed that before Mr. Giustra made his initial $31-million donation to the Clinton foundation, he accompanied him to Kazakhstan for a meeting with Nursultan Nazarbayev, the country’s president.
Three days later, Mr. Giustra was able to finalize a deal for valuable uranium properties in Kazakhstan.
Both Mr. Clinton and Mr. Giustra have strongly denied that Mr. Clinton has helped Mr. Giustra’s business dealings.
At least one major partner of the fund thinks Ms. Clinton’s role in government could limit the foundation’s activities. Lukas Lundin, the head of the Lundin family resource empire, whose own foundation, Lundin For Africa, made a $100-million pledge to the charity last year, says programs could be put on the “back burner” if Ms. Clinton joins the White House.
“If she is secretary of state, I can’t see how Bill Clinton can run around and do other stuff. It becomes very political. … You don’t want to get accused of something,” Mr. Lundin said in an interview.
Politics aside, Mr. Giustra stressed that while some of his foundation’s donors may have to trim back or delay pledges because of the financial crisis, this is no time to stop giving to charity.
“As we go into tough economic times, I suspect that that wealth gap, the divide between the rich and the poor, will, I suspect, continue to grow. I just think that the consequences of that for society are not good. My recommendation for anybody who still has the ability to give is to continue to give because not doing so is counterproductive,” he said.
*****
Verbatim Frank Giustra on the markets
Is the market mayhem an opportunity?
In every crisis, there is opportunity. The bigger the crisis, the bigger the opportunity. This one is a whopper. This is as big as it gets. My view is to stay focused and not succumb to the fear. Figure out what is really going on out there and the consequences of what current fiscal and monetary policy are going to be and how this is going to play out one, two or three years down the road.
How will this play out?
Here’s what I think is going to happen: What we’re witnessing is an unprecedented amount of monetary and fiscal stimulus being injected into the system. Wait a year or two and when we start to come out of this recession, and this one is going to be a bad one … this one will probably last a couple of years, but when we come out of that recession and the velocity of money starts to pick up and kick in, you’re going to see much higher inflation, a much lower U.S. dollar and a much higher gold price.
The stunning U.S. dollar rally, which deepened the commodity collapse, caught you (and nearly everybody else) by surprise. What happened?
As the panic unfolded, you had mass liquidations globally of all asset classes, either voluntary or forced. All the proceeds of that mass liquidation ran to where they felt they would be the most safe until the dust settled. The investment of choice was U.S. T-bills. … That is what caused this massive U.S. dollar rally. If you look at the fundamentals of the United States, the last thing we should be witnessing is a U.S. dollar rally. It’s a technical outcome, nothing to do with fundamentals.
Are you most focused on gold?
I always have been. This gold market, this gold cycle, is far from over. It started in 2001 and it will last 15 to 20 years with lots of ups and downs. The trend is higher.
In the past, you’ve tapped the capital markets to pay for resource assets. What now?
I have to assume the capital markets are closed. As you know, my whole M.O. has been to access the capital markets to acquire assets. I have to start looking at it differently and just look at the opportunities that exist already with assets that are trading at a fraction of their value. … There is lots of opportunity out there if you believe that we are going to come out of this recession in a couple of years and if you believe that commodity prices – and mainly from my perspective, gold – are going to continue to go higher. Andy Hoffman
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