By almost any measure – production, revenues, profits, market capitalization, stock performance, reserves – Denver- based Newmont Mining Corp. is the world’s top gold mining company.
Newmont’s financial performance, combined with rising gold prices and the cult-like popularity of company president Pierre Lassonde among gold watchers, has made Newmont a hot investment. The stock price has nearly doubled in the past two years.
“They’re head and shoulders above the competition,” said Frank Holmes of U.S. Global Investors Inc., a San Antonio mutual fund company that holds about $7.5 million in Newmont shares.
Newmont wasn’t always so large, or so admired. In the mid- 1990s, Newmont was the fifth- biggest gold mining company. It had a reputation as being capable and efficient but complacent.
The transformation didn’t happen overnight. In the course of a decade, Newmont’s leaders remade the company by pursuing growth at nearly every opportunity.
The company battled competitors for the spoils of consolidation, paying a premium for key mining properties around the globe. In Peru, Newmont fought aggressively to secure control of South America’s largest gold mine.
It expanded production in the United States and Australia, where the politics are predictable but the costs high. It also pushed into less stable countries such as Indonesia, where mining was cheaper and environmental regulations less stringent.
As Newmont grew, it devoted more money to exploration, allowing it to replace the gold it mined.
“Newmont has been very astute at making great acquisitions and replacing its reserves,” said Michele Ashby, chief executive of the Denver Gold Group, an industry association.
But problems accompanied Newmont’s explosive growth. Environmental and community troubles arose at its operations, particularly in developing countries. Newmont now faces the prospect that mounting opposition to its projects may hinder its growth.
Growth by acquisition
Founded as an investment company by wealthy New York mining investor William Boyce Thompson in 1921, the company evolved into the largest U.S. gold producer through acquisitions and exploration.
The company was among the first in the 1970s to use heap leaching, a low-cost process in which microscopic gold is removed from huge piles of low-grade ore using cyanide.
In 1993, four years after moving its headquarters to Denver, Newmont hired gold-industry veteran Ronald Cambre to run the company. The New Orleans native embarked on an aggressive campaign to boost production, exploration and profits.
Cambre purchased Santa Fe Pacific Gold Corp. for $2.1 billion in 1997, winning a pitched bidding war over rival Homestake Mining Co. Four years later, Newmont purchased Battle Mountain Gold Co. for $670 million. Both deals boosted Newmont’s Nevada gold reserves.
Throughout, Newmont expanded internationally. A discovery in northern Peru in the late 1980s blossomed into South America’s largest gold mine. In Indonesia, Newmont mined large deposits of gold and copper.
Perhaps Newmont’s most intense battle of the 1990s came in Peru, where it fought Normandy Mining Ltd. of Australia for a big stake in the Yanacocha mine. Newmont eventually won the high-profile dispute, which included efforts on both sides to influence the Peruvian supreme court.
Despite his successes, Cambre couldn’t turn around gold’s slide during the late 1990s. As a result, the company lost nearly $1 billion from 1998 to 2001. Cambre retired at the end of 2000.
Gold prices on a long rise
Four months after Newmont’s then-chief financial officer, Wayne Murdy, took control of the company in January 2001, gold prices hit $256, close to their 20-year low.
Murdy responded by continuing Cambre’s expansion binge. He entered into a bidding war with AngloGold Ltd. of South Africa for rival Normandy.
With the help of Lassonde, whose Franco-Nevada Mining Corp. owned a large stake in Normandy, Newmont won in February 2002. The three-way, $4.3 billion acquisition of Normandy and Franco-Nevada made Newmont the world’s largest producer of gold.
The deal gave Newmont Normandy’s mines and land holdings in Australia, Nevada and Ghana; Franco-Nevada’s cash- generating gold royalties business; and Lassonde, who took a $100 million stake in Newmont and became its president.
Lassonde’s predictions of a long march in gold prices and his refusal to hedge gold, or sell reserves to protect against price drops, are attracting new investors to Newmont.
Newmont has hedged in another way, putting $200 million earlier this year into a Canadian oil-sands venture. Lassonde says the investment grew by $75 million in the past three months.
The company, which forecasts gold production of roughly 7 million ounces this year, may not remain the world’s largest producer much longer. A pending merger of two South African mining companies could create a new industry leader.
Newmont’s environmental problems don’t appear to be concerning investors yet. When the stock dipped in September after Peruvian protesters forced Newmont to close Yanacocha for several days, some took it as a buying opportunity.
“You have to ask, ‘Is the world’s best gold mining company not going to benefit in a rising gold environment?’ The answer is no. That gives you the confidence to buy,” said Bob Bishop, publisher of the Gold Mining Stock Report.
Bishop suggests that increasing opposition from environmentalists and local communities won’t hurt Newmont or the mining industry.
It will restrict supply, he said, which in turn will keep gold prices high.
