Quotes of the Day

The old Yugoslav naval base at Tivat on the coast of Montenegro is a derelict place. Colossal jetties stretch out from an abandoned work yard piled with crumbling concrete, twisted metal rods and broken glass. In one corner, a Cold War-era submarine, its giant propeller exposed to the summer winds, is being slowly dismantled by a local crew in flip-flops. The berths are fouled with paint chips and rusted metal, and until a recent scavenging operation, explosives lay on the seabed.

The naval base may be ugly and unglamorous, but thanks to a group of high-profile foreign investors, Tivat is about to be reborn. Next month, construction begins on a new marina for megayachts that its backers say will help turn this lowly industrial town into a glistening new Monaco. Its current appearance notwithstanding, Tivat is fortuitously situated on the so-called Venice-Corfu leg, the fastest-growing cruise destination in the Mediterranean and a pleasure ground for some of the world's wealthiest people. Montenegro's roads are crumbling, its power supply sporadic and its sewage system inadequate, but its coastline is one of the most spectacular on the Mediterranean.

For Peter Munk, 80, the Hungarian-born Canadian who heads the mining giant Barrick Gold, that potential makes Montenegro a prime candidate for development. Relaxing in shorts and bare feet on his chartered 162-ft. (49 m) yacht on the deep blue waters near Tivat, Munk says Monaco was also a relatively backward town before it transformed itself — and swaths of the French Riviera with it — into the playground it is today. Tivat, or Porto Montenegro as the marina area is being renamed, will have a similar effect, Munk declares: "The whole Adriatic is going to be lifted up by this new Adriatic Monaco."

Munk, who built Barrick from nothing into the world's biggest gold-mining company, invested his own money to start the Montenegro project. But in recent months he has brought in an A list of fellow investors, including former banker Lord Jacob Rothschild and his son Nathan, French luxury-goods magnate Bernard Arnault and Russian mining billionaire Oleg Deripaska.

Munk's project is one of the biggest in a region long riven by wars and political turmoil. Montenegro was sealed off from the outside world by the violent breakup of Yugoslavia in the 1990s, and later by its political alliance with Serbia. But since winning independence from Belgrade in 2006, it has seen a rush to develop its pristine coastline, sparking worries among some locals that their patrimony may be sold off in unsustainable ways. "Montenegrins have good reason to be incredulous," says Prime Minister Milo Djukanovic, during an interview in the just-completed Hotel Splendid in the bustling resort town of Becici. "We have a long history of wars and conflict, not peace and development. But our mission is to break with that past."

The country's high mountains and valleys are still largely undeveloped; its Tara River canyon has the deepest gorges in Europe, and ancient cities and monasteries dot the rugged coastline. The old, walled trading city of Kotor, a few miles down the coast from Tivat, was founded by the Romans and ruled for nearly four centuries by the Venetians, who left their architectural mark. There have been more recent periods of glory, too. Back in the 1970s, the red-tiled resort island of Sveti Stefan was a summer retreat for the likes of Sophia Loren, Kirk Douglas and Doris Day. But Montenegro slipped into obscurity in the 1990s. Djukanovic and others unwisely sided with Serbian strongman Slobodan Milosevic and sent troops into Bosnia and Croatia. It wasn't until 1997 that Djukanovic broke with Milosevic, a divorce completed nine years later with the declaration of independence.

Munk recalls his first meeting with Djukanovic in 2004 when Montenegro was still joined to Serbia. "He said to me: 'I am going to get independence and I want to raise the standard of living of my people. The way I can do this is turn this into another Monaco.' I told him, 'If you mean what you say, then you've got one of the only men in the world who can make it happen.'"

Explaining his vision today, Djukanovic says: "We are a small country. We have no space for mass tourism. We want to use every inch of territory that we have to attract the highest-paying guests. We have the frame; now we want to fill it with a beautiful picture." The development at Tivat is the centerpiece of these ambitions. The plan includes an 800-berth marina, a golf course, a resort village and several hotels. Where an old corrugated-iron warehouse stood, the Four Seasons is building its first resort on the Mediterranean, to open in 2010.

The idea for the development, says Munk, came to him while on holiday. For the past 20 years his family has chartered a yacht on the Mediterranean. In that time, he couldn't help noticing how the old marinas at Monaco, St. Tropez, Antibes and elsewhere had no easy way to expand even as more and more huge yachts came off the production lines. As a result, berth rental prices shot up. At Antibes, for example, they've risen nearly 30% in five years.

So when the government of what was then Serbia and Montenegro approached him in 2004 with an idea to privatize an old Austro-Hungarian-era arsenal not far from Kotor, Munk met Djukanovic and says he "fell in love" with him. Djukanovic lent him a government helicopter to look at the site: "It was mind-blowing," Munk recalls. "I saw these frigates and warships and submarines and thought that here a superyacht would feel right at home."

Some eyebrows were raised in Montenegro when the government agreed to a $5 million sale price for about 62 acres (25 ha) of land and a half-mile (0.8 km) stretch of palm-shaded shoreline facing a wide bay backed by mountains. But, contends Djukanovic, "you either sell the land or buy a project. We bought a project." In addition to creating an estimated 5,000 jobs when finished, the investors agreed to clean up the waters around the site, buy out about 480 workers who lost their jobs when the shipyard shut down, and upgrade Tivat's sewage and water-supply systems. Munk is even offering local students scholarships to Canadian universities. Initial hostility from opposition politicians who accused him of planning to auction off the land for a quick buck has abated. "This is just the kind of project that Montenegro needs," says Rade Ratkovic, a professor at the Faculty for Tourism, Hospitality and Trade Management in the port city of Bar. "We should award him a title: Count Munk of Tivat."

Munk isn't the only one smitten by the charms of Montenegro. The luxury hotel chain Amanresorts is renovating two of the finest sites on the coast. And an influx of Russians is already making it the fastest-growing tourist destination in the world. Billboards promising "choice properties" in Russian Cyrillic script line the avenues of coastal towns like Becici. Property prices have shot up, rising as much as fivefold in Tivat over the past five years. A building boom, meanwhile, is gobbling up green space. Pavle Jurlina, a pharmacist in Tivat, says his cousin just sold off land that had been in the family for more than 150 years, ever since his great-great-grandfather bought it with profits from prospecting for gold in California. Ratkovic, the tourism professor, says Montenegro's government needs to put a brake on the "construction frenzy" of apartments and houses, and should instead provide more incentives for hotel developments that generate more long-term revenue. The country still suffers from a yawning income gap between rich and poor, and closing it is going to take more than a few luxury "oases" like Porto Montenegro, says Mirjana Kuljak, an economics professor at the University of Montenegro.

Montenegro has a long way to go in other respects, too. Crumbling roads make it difficult to reach some of the more attractive destinations. Raw sewage flows from Kotor and Tivat into the Bay of Kotor, and there are daily power outages. Still, the tiny country has achieved a good deal in a short time. Less than a decade ago, NATO warplanes were bombing targets in Montenegro in the campaign to drive Milosevic out of Kosovo. And now? Budva's "Jaz" beach hosted the Rolling Stones last summer and in September will stage part of Madonna's 50th birthday tour.

Djukanovic has played a leading role in most of his country's turbulent events over the past 20 years. With offhand pride, he says that his European colleagues now confide in him that Montenegro has become "boring." For diplomats, that is probably true. But for Peter Munk and the well-heeled visitors who may one day flock to the marina, hotels and cafés of Porto Montenegro, the thrill is yet to come.

• Andrew Purvis / Tivat
• A mining billionaire bets that a neglected port on Montenegro's coast can be a playground for the rich