Flare-ups at Denver-based Newmont Mining’s gold mines around the globe may be hurting the company’s financial performance and its image with investors, say analysts who follow the company.
Community activists at the sites and global environmental groups allege that Newmont has polluted the mining regions and caused social upheaval.
In Peru, Newmont has faced years of controversy over a mercury spill and other alleged environmental damage. A top Newmont executive is being criminally tried in Indonesia for suspected heavy-metals pollution of coastal waters.
Villagers in Ghana claim that Newmont has contaminated local water supplies, and in Uzbekistan, Newmont faces possible forfeiture of its mine in a dispute over taxes with the government.
“It really hurts them,” said John Haigh, executive director of the Denver Gold Group, a mining industry advocacy group. “You can hardly pick up a newspaper without seeing these allegations. The psychological impact of that hurts them.”
Newmont officials say they have taken comprehensive steps to limit pollution and improve community relations at the company’s mines.
While high gold prices have helped Newmont record annual profits averaging $350 million over the past four years, controversy targeted at the company could take a toll financially – though analysts say that impact is difficult to quantify.
Daily volatility in gold prices – one of the chief drivers of gold-mining companies’ stock prices – makes it hard to correlate problems at Newmont’s mines with drops in share price.
Since February’s 19-year high price of $61.95, Newmont shares have fallen 18 percent to $50.71.
Newmont’s stock is particularly sensitive to changing gold prices because the company does not hedge – a technique employed by some gold companies to set pre-arranged sales prices for their production.
The most recent of Newmont’s problems is a dispute with the government of Uzbekistan that has left the miner’s entire project in the country at risk.
The government has demanded $48 million in back taxes, launched a criminal investigation of the operation and filed an involuntary bankruptcy action against the Newmont joint venture – moves that Newmont will contest but which the company acknowledges could lead to a government seizure of its operations there.
“It makes people think twice about investing in companies that operate in risky areas,” said Patrick Chidley, a mining analyst at investment firm Barnard Jacobs Mellet in Stamford, Conn. “Unfortunately, it’s a reflection of doing business in dangerous parts of the world.”
In countries such as Peru and Ghana, Newmont has maintained generally good relationships with the governments but generated ill will from citizens near its mining operations.
That has led to harsh criticism from environmental groups, also known as nongovernmental organizations or NGOs, and so-called “socially responsible” investors.
“It’s an issue led by the NGOs who are dedicated to stopping any mining development,” said Barney Guarnera of Denver mining advisory firm Behre Dolbear.
Newmont is less likely than many other gold-mining firms to experience problems that could drive investors away, said Newmont vice president Randy Engel.
That’s because Newmont seeks to maintain about one-half of its operations in developed countries such as the U.S., Canada and Australia, where government seizures and civil disruptions are unlikely. Many other gold-mining firms have more of their operations in higher-risk countries, according to Newmont.
“Events certainly sharpen investor focus on risk, particularly in developing countries,” Engel said. “Developing countries tend to have a higher level of geopolitical risk, and we try to spread that risk, as evenly as possible, among a handful of countries.”
Environmental and social problems have placed Newmont and other mining companies off-limits for some institutional investors.
“Most of these mining companies have similar problems because of the size of their operations and their mining techniques, such as use of cyanide,” said Andrew Brengle, senior research analyst at Boston-based KLD Research & Analytics, a firm that advises investors on companies’ environmental and social records.
“We have excluded or screened out Newmont because of controversies over their activities,” he said.
That means that $10 billion in annual investment by KLD clients such as major pension fund TIAA-CREF won’t go to Newmont or other companies judged to have poor records.
Newmont’s problems don’t necessarily steer investors away from the company, even among socially activist investment firms.
“We actually hold Newmont (shares) and have tried the engagement approach versus not investing,” said Lauren Com pere, chief administrative officer of Boston Common Asset Management LLC, a firm that generally avoids investing in companies with histories of poor environmental performance, employment practices, labor relations and human rights records.
For three years, Boston Common has communicated with Newmont on concerns about community relations in Peru, Ghana and Nevada.
Compere said Newmont recently has invested in more community relations staff, improved its community consultation process, developed a community relations training handbook and conducted human rights training.
“Newmont is faced with legacy problems and issues that they will proactively have to address in order for things to improve on the ground in places like Peru and Indonesia,” she said.
Staff writer Steve Raabe can be reached at 303-820-1948 or sraabe@denverpost.com.
