Newmont has more great mines associated with it than most mining companies. Its first major gold mining investment was made before the company was incorporated. In 1917 it took a founding 25% interest in Anglo American Corp of South Africa. Other great names include Hudson Bay Mining & Smelting (Flin Flon) Magma Copper, O’okiep Copper, Sherritt Gordon, Southern Peru Copper, Palabora and Peabody Coal; and then there are all the other great projects that will be examined in more detail in forthcoming articles in this series.
On May 4, 1965, the Newmont subsidiary Carlin Gold Mining in Nevada poured its first gold bar. As Jack Morris notes in his excellent history of Newmont, Going for Gold, published last year, “Carlin became the first large open-pit gold mine in the world.” Carlin is one of the greatest of Newmont’s achievements. Jonathan Price, Nevada State Geologist, wrote in 1991: “The discovery of the Carlin deposit is one of the most significant events in worldwide mining and in the history of Nevada. Deposits on the Carlin Trend have set new standards for gold mining throughout the world. Large-scale mining, heap leaching [first used on a large scale by Newmont] and automation at various levels in mining, milling and assaying processes have cut overall costs and allowed lower and lower grades of ore to be mined.”
By April 2002, the Carlin Trend had yielded 50 Moz (1,555 t) of gold and through 2007 the total had reached 68.5 Moz (2,131 t). By 2008, Newmont had produced 50 Moz of gold from the Carlin Trend, and almost 40% of the 9,000 miners in Nevada were employed by the company. Morris notes that “in the history of gold mining, only three other districts – the Witwatersrand of South Africa, Muruntau in Uzbekistan and Kalgoorlie in Australia – have produced 50 Moz. Newmont has been involved in all three.” It is still very active in the Kalgoorlie area with the Boddington mine, which will be one of Australia’s largest gold producers, with an expected operating life of more than 24 years.
Newmont also owns 50% of the economic backbone of Kalgoorlie-Boulder (with Barrick owning the other 50%), the Super Pit, which is operated by Kalgoorlie Consolidated Gold Mines (KCGM). Recently, after years of analysis and debate, the Western Australian Government gave KCGM approval to expand and extend its mine life to 2021. To achieve this, KCGM had to meet stringent standards for environmental performance due to its proximity to the town. The operation poured its 13 millionth oz of gold in December 2009. This momentous occasion marked 54 Moz of gold produced from the Golden Mile in over a century of gold production.
Boddington produced 180,000 oz of gold and 14 Mlb of copper during the third quarter of 2010 at costs applicable to sales of $617/oz ($487/oz on a byproduct basis) and $1.8/lb, respectively. Unplanned mill maintenance resulted in lower throughput and production for July and August, while higher mill grades resulted in higher gold and copper production in September. Compared to the second quarter of 2010, gold and copper production decreased by 2% and 12%, respectively. Commercial production was declared at Boddington during the fourth quarter 2009, thus it was compared on a quarter over quarter, rather than year over year basis. Production for 2010 was expected to be between 700,000 and 750,000 oz at costs of between $575 to $595/oz and 50 to 60 Mlb of copper, at costs of between $1.75 and $1.95/lb.
From 1916 to…..
The original Newmont is actually older than 90 since Colonel William Boyce Thompson founded the Newmont Company in 1916 as a holding company for private acquisitions in oil and gas, mining and minerals enterprises. The name came about because Thompson grew up in Montana and made his money in New York. Thompson added the ‘Mining’ to the company name on May 2, 1921- hence this is its 90th year.
Thompson was a mine promoter and financier. He took his company public in 1925 and saw the share price rocket from $40 to $236 in just four years. Thanks to the purchase of the Empire-Star Mines in California, Newmont continued to operate during the Great Depression after President Franklin D. Roosevelt increased the gold standard price from $20 to $35/oz. The company also became a shareholder of Magma Copper – one of the largest copper producers in the US at the time – and acquired the Idarado and Resurrection mining companies in Colorado to mine gold, lead, zinc and copper.
Publicly traded on the New York Stock Exchange since 1940, Newmont has spent its 90 years primarily in the natural resources industry – mining gold, copper, silver, lead, zinc, lithium, uranium, coal, nickel and aggregates, even dabbling in oil and gas. Newmont spent the next three decades after the Great Depression growing steadily by acquiring new operations and diversifying its mining portfolio through joint ventures with established mining companies.
Over this period, the company clearly demonstrated its capacity to innovate, a trait that continues today, experimenting with new processing techniques for metals such as nickel and lithium. It created the largest cement plant in the US and refined copper for use in the automotive industry. In all, Newmont grew its operations, producing 28 different products from mines, wells, plants and refineries in the US, Canada, Africa, Peru and elsewhere.
In Nevada, Newmont discovered the world’s first sub-microscopic or “invisible” gold at Carlin in the early 1960s and began production from the first major open-pit gold mine in the world. Its mines on the Carlin Trend were the first in North America to produce 1 Moz in a year. Carlin became the foundation of Newmont’s rise in the world gold market. Today, as one of the world’s leading gold companies, Newmont’s more than 34,000 employees and contractors operate on five continents in eight countries across the globe.
By the mid-1980s, the company was flush with cash, had little debt and was developing a growing gold district in Nevada. Many on Wall Street considered that Newmont’s parts were worth more than the whole, believing the company’s non-gold assets of $2.2 billion to be undervalued by $1.5 billion. This attracted corporate raiders – Consolidated Gold Fields, T. Boone Pickens, Minorco, Hanson Industries and Sir James Goldsmith – who sought to break Newmont apart and sell its assets to increase shareholder value. Newmont faced tumultuous times as it fought to thwart these five takeover bids.
In his book, Morris notes that Richard Leather, Executive Vice President and general counsel at the time of the Pickens fight describes it as “Gordon’s finest moment.” Morris says Leather credited the CEO (Gordon Parker) “with co-ordinating a top team of investment bankers and lawyers and in the end preserving the independence of the company.” Jack McNally at White & Case was lead counsel and Bernard Naussbaum at Watchell Lipton, later counsel to President Clinton, was litigator. “He took advice, he took his own counsel, and he took the measure of things and people,” Leather says of the CEO. “It was his judgment that the dividend and its implications for reshaping the company were in the best interest of Newmont’s shareholders. Events swept Newmont through the Pickens affair. You had to make a decision, a dividend decision was made, there was fallout from that decision, and then another decision needed to be made. The corporation was falling down the mountain and there were no brakes. Go left; go right; what next? Gordon was good at making those decisions.”
Morris further notes at that time Gold Fields “came quite close to launching its own hostile bid for Newmont and had arranged the necessary financing for such a bid through First Boston.”
Focus on gold
While eventually the company was successful, these battles left Newmont in significant debt, requiring it to divest its non-gold assets. What remained was the great Carlin Trend operations as its primary asset with fledgling operations in Peru and Uzbekistan.
Morris: “At year-end 1987, the company had a negative net worth of nearly $500 million, was saddled with a record $1.9 billion in debt, and had committed $450 million (which later became $500 million) to accelerate production in Nevada. Paying down debt became an all-encompassing focus.
“Within a year, $1 billion was raised from the sale of the company’s oil operations, its DuPont stock, its interests in southern Africa and Canada, and its remaining stock in Foote Mineral. With rising copper prices, Magma Copper turned profitable in 1988 for the first time in seven years, and Newmont was able to sell its remaining 15% interest for $190 million in a leveraged buyout. (In 1996, Australia’s BHP acquired Magma for $2.4 billion, only to shutter operations three years later when copper prices again tumbled. By the time it closed in July 1999, San Manuel had mined 703 Mt of ore, a world record for an underground mine.)
“In a significant move for a gold producer, Newmont in February 1988 entered into a syndicated gold loan, a type of hedge. One million ounces of gold were borrowed from financial institutions led by the Bank of Nova Scotia and sold immediately for $449 an ounce, to be repaid from production over the next four years. At the time, it was the largest gold loan ever made.”
“In Nevada, Peter Philip, President of Newmont Gold, unleashed a tornado of activity to develop new properties, build new mills, and accelerate production.” “That’s when everything went crazy,” says Tom Enos (retired in 2007 as Executive VP of operations), who in 1988 had spent 17 years climbing the management ladder at Carlin. “It was, ‘We’ve got to make how many ounces?’ Nobody had ever produced that many ounces, ever. We built Mill No. 3, Mill No. 4, and Mill No. 5, just boom, boom, boom.”
“Philip credits Bechtel with much of the company’s success,” says Morris. Philip: “They are the people who could really act fast and get involved very quickly. We depended on them and used a lot of their experience other than just design.”
Bechtel built Mill No. 1 at Carlin in 1964 and had just completed Mill No. 2 at Gold Quarry. Mill No. 3 at Rain was a version of Mill No. 1, while Mill No. 4 at Genesis and Mill No. 5 at Gold Quarry were nearly carbon copies of Mill No. 2.
“It was quicker to leave the drawings just as they were and say, ‘Build it just like that,'” says Philip. “We took shortcuts, but it was important to take shortcuts. We had gone to the market and told them what we could do and now we had to make it happen. Number two, we didn’t know how long this gold boom was going to last. It had already peaked and was coming down. Every day you lost you had a lower gold price. If we had gone slower, we might have done finer engineering or maybe made better estimates on the capital side, but we would have lost time and time was terribly important.”
So, to increase shareholder value, Newmont expanded globally and renewed its focus on gold. As Morris notes above, it made major investments in Nevada. Then came Australia, Peru, Indonesia and Ghana; and it formed a joint venture gold project in Zarafshan, Uzbekistan; then engaged in four acquisitions and mergers beginning in 1997, becoming the world’s largest gold producer from 2002-2006.
During his battles against corporate raiders, Parker became the first Chairman of the World Gold Council (WGC) in 1987. Morris: “Parker, who was born and spent much of his working life in South Africa, became the South Africans’ man of choice to head the new organisation and bring other North American producers into the fold. Harry Van Benschoten, Newmont’s VP of Accounting, who set up the new organisation’s headquarters in Geneva and brought Price Waterhouse onboard as its auditors, credits Parker’s involvement for both revitalising gold marketing and giving Newmont confidence in a gold strategy.”
“Gordon had tremendous responsibility and accomplishment in changing the whole structure” of gold promotion, he says. “And, I think that positioned Newmont to springboard more into the gold business.”
Newmont’s support of the WGC has been steadfast with another President, Pierre Lassonde, named Chairman in 2005.
A central Asian wonder
Newmont’s reputation for success in major projects is well founded and Uzbekistan is a great example of this. In the middle of the Kyzylkum Desert, opened in 1972 and responsible for nearly one-third of the gold production in the former Soviet Union, was the great Muruntau open-pit mine. Newmont became aware of a massive stockpile of its low-grade – some 240 Mt standing over 30m high and stretching for several kilometres. The mine had carefully segregated the ore by grade, from 0.035 to 0.05 oz/t, but did not have the technology to process it. Newmont had 25 years of experience in heap leaching and had helped develop the technology to heap leach low-grade ores.
Morris explains that “the Zarafshan-Newmont Joint Venture agreement was signed in February 1992-six months after the country’s independence-with Newmont owning 50% and 25% each being held by two Uzbek state agencies” – the State Committee for Geology and the Navoi Mining and Metallurgical Combine.
“Under the agreement, the government provided the stockpiled ore at a guaranteed grade, containing 8.7 Moz of gold. With leach recovery rates of 50 to 65%, this was expected to yield 4.8 Moz of gold over a 17-year period. The Zarafshan gold was processed at Muruntau, which won international recognition as a certified refinery.”
To get the project off the ground, “Treasurer Patricia Flanagan contacted the London-based European Bank for Reconstruction and Development (EBRD), which had just been established and was looking for a flagship project in which to invest. With the EBRD as the lead, she and Wayne Murdy, who joined Newmont as CFO that fall, put together a consortium of thirteen banks from around the world to provide $135 million in financing.
Establishing the project, like so many great mines, was not for the feint-hearted. “Dozens of Newmont employees-technical, financial, and legal-made trips to Uzbekistan to work out the details of the agreement. All tell hairraising stories of local airplanes with metal cords protruding from bald tyres, cracked windows, nonexistent seatbelts, smoking stewardesses, and drunken stowaways.
“Ground was broken in October 1993 for an operation that included a four-stage crushing circuit [42,500 t/d], a large conveyorstacking system, lined leach pads, and a Merrill-Crowe recovery plant. Bateman Engineering designed the facility. Logistics for the project, the largest construction job in Central Asia, was an incredible feat requiring the delivery of 45,000 t of steel, machinery, and earthmoving equipment.
“Production began slowly in 1995 after a $100 million construction cost overrun, but expectations were high. At a gala dedication celebration in Tashkent on May 25, Newmont CEO Ronald Cambre thanked the company’s Uzbek partners for their dedication in bringing the project into operation.”
“Zarafshan-Newmont had its best year in 2002 with production of 512,000 oz of gold, half for Newmont’s account, at a cash cost of $134/oz. But output declined thereafter, in part because with higher prices the government began delivering lower-grade ore.
“Then, in June 2006, the government retroactively changed its tax law. In August, the government issued involuntary bankruptcy proceedings against the joint venture, halted gold exports and the payment of foreign debts, and seized all gold and inventory on the premises. The action amounted to an expropriation of the company’s assets. The company immediately removed its last expatriate employees from the country and in September 2006 wrote off the book value of its investment, taking a pre-tax loss of $101 million.
In 2007 things started moving on what should turn out to be another great project. That year, with Wayne Murdy coming to the end of his period as CEO, Newmont took advantage of rising gold prices by shedding its non-core assets and acquiring Miramar Mining Corp and its Hope Bay project in Nunavut, Canada. The company also eliminated its 1.5 Moz legacy hedge book to make it the world’s largest unhedged gold producer. That same year Murdy retired and Richard O’Brien became CEO in mid-2007.
“O’Brien moved swiftly. On July 5, Newmont announced that it had spent $578 million to buy back its hedge position. The company also jettisoned its merchant banking business and took a $1.7 billion write-off for good will. While keeping Newmont Capital’s investments in oil sands and other mining interests, the company’s royalty assets were sold in an initial public offering in Canada for $1.3 billion in December. Additionally, Newmont raised $1.15 billion in convertible senior notes, its largest financing since fending off Boone Pickens 20 years earlier, and at year-end 2007 made a successful $1.5 billion bid for control of Miramar Mining.”
Located in Northern Canada, Hope Bay is an 80 km district with up to 9 Moz gold potential in the Canadian Arctic and is one of the last known undeveloped greenstone belts in the world. Newmont controls 100% of the belt and exploration success over the last few years continues to confirm the district’s significant long-term potential.
During the first phase of project development, Newmont is moving forward with the initial development of the Doris North underground mine. This phase will consist of an underground decline providing access for test stoping and development drilling. Exploration across the belt and development of other known deposits will continue in parallel, along with permitting activities for potential future stages.
A gold standard to follow
In 2007, Newmont became the first gold company listed on the Dow Jones Sustainability World Index, the premier sustainability index tracking the performance of 2,500 leading companies, worldwide. The DJSI independently evaluates companies’ long-term economic, environmental and social performance, publicly identifying the top 10% of performers in areas of sustainability. In 2010, demonstrating continuing leadership in safety, stewardship of the environment and social responsibility as guiding values, Newmont was included in the DJSI for the fourth consecutive year.
On November 2, 2010, Newmont announced record quarterly revenue of $2.6 billion for the third quarter compared to $2.0 billion in the prior year quarter. Third quarter 2010 highlights included:
■ Equity gold and copper production of 1.4 Moz and 83 Mlb, respectively
■ Average realised gold and copper price of $1,221/oz and $3.67/lb, respectively
■ Costs applicable to sales for gold and copper of $477/oz on a co-product basis and $0.73/lb, respectively
■ Adjusted net income of $534 million ($1.08/share) and reported net income of $537 million ($1.09/share).
Today’s President and CEO, O’Brien, said “With the substantial free cash flow that we continue to generate in the current metal price environment, we remain focused on the development of our next generation of mining projects. This includes Conga in Peru, Akyem in Ghana, and Hope Bay in Canada, as well as a series of satellite deposits in Nevada. Of the $1.3-$1.5 billion in capital we expect to spend this year, approximately 40% will be invested in our development pipeline, with increasing reinvestment expected over the next several years.”
Newmont is expecting equity gold production of 5.3 to 5.4 Moz in 2010 and its outlook for costs (applicable to sales, as in all cases below) was between $485 and $500/oz.
Looking forward to the operations that will be covered in detail in this series of Great Mines articles, Nevada produced 453,000 oz(equity) of gold at costs of $575/oz during the third quarter. The expected 2010 equity gold production from Nevada is between 1.71 to 1.75 Moz at costs of between $590 and $610/oz.
Equity gold production at La Herradura in Mexico during the third quarter was 42,000 oz at costs of $464/oz. La Herradura 2010 equity gold production of 55,000-165,000 oz was expected at costs of between $405 and $420/oz.
At Yanacocha in Peru equity gold production was 182,000 oz at costs of $420/oz. Newmont predicted 2010 equity gold production of between 760,000 and 770,000 oz at costs of between $400 and $420/oz. Some 15,000 equity oz of production is also expected in 2010 at La Zanja, which began commercial production in the third quarter.
From Indonesia, Batu Hijau’s equity gold and copper production during the third quarter were 106,000 oz and 69 Mlb, respectively, at costs of $211/oz and $0.65/lb, respectively. The predicted 2010 equity gold and copper production from Batu Hijau was 310,000-340,000 oz, and 250-265 Mlb, respectively. Newmont expected 2010 gold and copper costs of between $250 and $270/oz and $0.65 and $0.75/lb, respectively.
Equity gold production at the other Australia/New Zealand operations during the quarter was 284,000 oz at costs of $552/oz. The expectation for 2010 equity gold production at the other Australia/New Zealand operations is for between 1.09 and 1.11 Moz at costs of between $550 and $570/oz.
In Africa gold production during the quarter at Ahafo in Ghana was 156,000 oz at costs of $422/oz. The 2010 gold production expected at Ahafo was between 520,000 and 540,000 oz at costs of between $430 and $470/oz. IM
Going for Gold
A former Wall Street Journal reporter and Newmont insider, Jack Morris recounts the prowess and challenges faced by the company in his book, Going for Gold: the History of Newmont Mining Corporation (University of Alabama Press, June 2010). The book profiles how the company prospered during the Great Depression by buying the most famous gold mines in California; how it contributed to the production of strategic metals such as lead and zinc during World War II; and how it became one of the world’s largest copper producers and then turned back to gold once the government lifted price controls on the metal in 1972. The company’s ability to adapt to changing economic and political circumstances has been a hallmark of Newmont’s success over the decades. Morris also provides an insider’s look at Newmont’s acquisitions including Santa Fe Pacific Gold, Franco-Nevada and Normandy Mining, while also exploring the issues that twice prevented a merger with Barrick Gold. Morris, a former Vice President of Investor Relations at Newmont, had unique access to the company’s documents and people, interviewing more than 80 Newmont officers and employees. Sensitive about objectivity, he insisted on working at arm’s length from Newmont, which exercised no control over the content of the book. “What makes Going for Gold unique is that decision makers were able to speak candidly about transforming events without going through a PR filter,” says Morris. “The men and women I interviewed had wonderful stories that make Newmont’s history both real and relevant.”
Going for Gold – 432 pp, 53 illustrations.
ISBN-13: 978-08173-1677-8.
University of Alabama Press – www.uapress.ua.edu/
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