Newmont Mining Corporation Business Information, Profile, and History
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Denver, Colorado 80203
History of Newmont Mining Corporation
Newmont Mining Corporation, primarily through two subsidiaries, is engaged in the exploration, mining, and processing of gold. The bulk of Newmont's revenue is generated by Newmont Gold Company (NGC), of which parent Newmont controls a 90.1 percent interest. Operating in Nevada along a 38-mile stretch of the Carlin Trend, NGC is North America's leading producer of gold. NGC controls a 58-square-mile area of mineral rights in the Carlin region, while Newmont owns rights to a surrounding additional 420 square miles. In 1991, NGC accounted for about $573 million of Newmont's $623 million total sales, mining 132 million tons of gold ore and selling 1.58 million ounces of gold. Newmont's other main subsidiary is the wholly owned Newmont Exploration Limited (NEL) whose role is to discover new gold deposits in NGC's areas of interest and to determine the minable ore reserves in these deposits by drilling. In exchange for a 10 percent royalty, NGC has rights to any gold discovered by NEL in the 2,300-square-mile area around its Carlin property. Newmont's cost to produce an ounce of gold in 1991--$203--was a more efficient rate than 75 percent of the Western world's gold production.
Newmont was founded in 1921 as Newmont Corporation by Colonel William Boyce Thompson as a type of holding company for his varied financial interests. Thompson was born in 1869 in Alder Gulch, Montana, and grew up in Butte. An overweight, cigar-smoking man with a penchant for gambling (a telling hobby for someone in his line of work), Thompson eventually landed at the Columbia School of Mines, after which he made some money in the coal business. Upon selling stock in a copper mine he had bought on installments, Thompson arrived around 1905 on Wall Street where he became a successful trader, making gains in several industries, including oil, steel, and minerals. Newmont's early strategy was to establish development companies and then to sell off much of their stock. The remaining stock was accumulated in a portfolio whose income was used to finance further mining projects. Thompson had a hand in launching several companies, including Magma Copper and Texas Gulf Sulphur, but his standard policy was to make a quick profit on a new venture and to move on to the next one.
Newmont stock reached a peak of 236 in 1929, but crashed with the rest of the stock market and dropped to 37 in 1930. Thompson died the same year, never fully recovering from surgery to reduce his obesity. His personal attorney, Charles F. Ayer, took over as head of Newmont, and the company began to retain its acquired properties rather than perpetuating its earlier cycle of trading them off. Among the companies Newmont acquired in the years prior to World War II were O'okiep Copper Compny, Ltd., of South Africa, and Colorado's Idarado Mining Corporation. Also launched during this period was Newmont Oil Company, whose aim was to explore Texas and Louisiana for oil reserves.
By 1940, Newmont existed as an interesting hybrid of holding company and operating company. As a holding company, Newmont's investments were primarily in well-known metal and mining companies, with copper leading the way. These investments included hundreds of thousands of shares of Kennecott, Phelps Dodge, and Hudson Bay Mining and Smelting. Gold represented about 19 percent of the company's total investments. Among the significant ventures that Newmont was actively developing were O'okiep, in which Newmont held a two-thirds interest; Getch Mine, Inc., a Nevada gold mine, 18.6 percent held by Newmont; and Alder Oil Company, a wholly owned subsidiary.
Through O'okiep, Newmont launched successful ventures in southern Africa. Abandoned by its British owners, O'okiep was acquired by Newmont for the modest investment of $2 million, and Newmont subsequently took advantage of the increased demand for copper during World War II. After the war, due to high costs and a labor shortage in the United States, Newmont decided to concentrate its prospecting abroad. The result was the acquisition of an abandoned copper-lead-zinc mine at Tsumeb in the former German colony of South-West Africa. The German owners had collected an extremely rich ore at the mine, and when the site was seized in 1939 by South Africa's Custodian of Enemy Property about 800,000 tons of the ore had been left at the surface. Newmont teamed with American Metal Company and five other partners for a bid of just over $4 million, with Newmont's share at 29 percent. Tsumeb's ore reserves turned out to be much greater than anyone--including its former German operators--had imagined, and the purchase price was covered by merely processing the ore that had been dumped at the surface.
By 1950, Newmont was led by Fred Searls who, like Thompson, was a recognizable figure on Wall Street. Known for his red bowtie and yellow-topped boots, Searls disliked publicity and preferred ore exploration to sitting in an office. During this time, Newmont became involved with lucrative Sherritt Gordon Mines of Canada. In 1951, John Drybrough, president of the Newmont Mining Corporation of Canada subsidiary, informed Newmont officials that a company run by his brother-in-law had discovered nickel deposits in Manitoba, as well as a new, more efficient method for processing the ore. With the backing of J. P. Morgan and Company, Metropolitan Life, and several other insurance companies, Newmont went ahead with the project and invested $10 million in the mining company. Eventually Sherritt Gordon became one of the largest producers of nickel in the world.
Plato Malozemoff became Newmont's president in 1954. The son of a mining engineer, Malozemoff was born in 1909 in St. Petersburg, Russia, where his father was managing director of British-owned Lena Goldfields, Ltd., the largest gold-mining company in Russia until its seizure by the Soviets in 1920. The Malozemoff family eventually landed in San Francisco, where Plato earned a degree in mining engineering at Berkeley in 1931. After receiving his master's degree from the Montana School of Mines, Malozemoff assisted his father in the management of gold and copper mines in Argentina and Costa Rica. He was first noticed by Newmont executives around 1943 while working for the Office of Price Administration's minerals branch in Washington, D.C., and was hired by Newmont in 1945. One of the driving forces behind the Sherritt Gordon deal, Malozemoff was made a vice-president as the project successfully unfolded.
Under Malozemoff's leadership, Newmont entered a period of steady growth by acquisition and diversification, often through joint ventures with other well-established companies. In 1955, Newmont joined Phelps Dodge, American Smelting and Refining, and Cerro de Pasco in forming the Southern Peru Copper Corporation. That same year, a uranium oxide mine was opened in Washington State with the company's majority interest in the Dawn Mining Company. Newmont also bought a 28.8 percent share in the development of a South African copper mine with Rio Tinto in Transvaal, South Africa. In 1955, a particularly active year, investments were also made in the Philippines, Canada, and Algeria. In 1957, Empire Star Mines Company, Ltd., was merged into Newmont.
At the end of the 1950s, Newmont began to reverse its trend toward reliance on foreign investment. In 1959, $8.2 million of the company's $13 million dividend income came from foreign holdings, primarily the mines of Tsumeb and O'okiep. Newmont took action to remedy this imbalance in 1962 by trading some of its own preferred stock for a large block of stock in Magma Copper. With this deal, Newmont's interest in Magma was raised to 80.6 percent, and suddenly the company's income from domestic holdings surpassed its foreign-generated total. Following the acquisition of additional Magma shares, Newmont was forced by the U.S. Justice Department to divest its 2.9 percent interest in Phelps Dodge on the grounds that holdings in both large copper companies violated antitrust laws. Newmont complied, and also removed two Phelps Dodge representatives from its own board of directors.
By the middle of the 1960s, over half of Newmont's income originated in North America. Most of this was in the United States, largely due to the 1965 opening of the company's new mine at Carlin, Nevada. The mine, operated by Carlin Gold Mining Company (a wholly owned subsidiary of Newmont), began operations in April 1965, producing 128,500 ounces of gold by year-end. The output was doubled the following year and Carlin quickly became the second-largest gold producer in the nation, trailing only the 90-year-old Homestake Mine, also in Nevada. More amazing than Carlin's size was the technology used to collect its difficult-to-obtain riches. In 1966, 12 tons of overburden had to be removed and 3 tons of ore milled to retrieve an ounce of gold at Carlin. Furthermore, the gold particles were the smallest yet ever mined, requiring an electron microscope to be seen. Despite these obstacles, Carlin became the lowest-cost gold mine in the Western world, a fact reflected in Newmont's earnings figures which rose to $5.15 a share in 1966.
Malozemoff became Newmont's chairman of the board in 1966, reinforcing his position as the company's main visionary force. Between 1965 and 1967, Malozemoff and Newmont quadrupled the sum spent by the company on exploration, reaching $4.4 million in 1966. The company's Palabora Mine in South Africa also came into production in early 1966 and began paying dividends by the end of the year. Between Palabora, Tsumeb, and O'okiep, Newmont realized dividends approaching $20 million from its southern African properties. Toward the end of 1966 and into 1967, Newmont acquired a 33 percent interest in Foote Mineral Company, a major producer of iron alloys and lithium products. This purchase enabled Newmont to place three representatives (one of them Malozemoff) on Foote's board of directors. Several Newmont ventures in the 1960s, however, were unsuccessful. A lead-zinc mine in Algeria became nationalized by the government; Granduc Mine, an underground copper project in Canada, encountered a series of costly construction and development delays, including an avalanche that dumped 50,000 tons of snow on the work camp and killed 26 laborers; and a joint venture with Cerro Corporation, Atlantic Cement Company, failed to turn a profit for several years, running into alternating problems with machinery and labor.
In 1969 Newmont merged completely with Magma Copper, of which it already owned 80.6 percent. Magma's minority stockholders were issued Newmont convertible preferred stock in exchange for their shares. With earnings of over $26 million at the time of the merger, Magma was the fourth-largest domestic copper producer, and by 1970 about three-fourths of Newmont's revenue came from copper. The company's strategy of shifting away from reliance on foreign sources continued; by 1970, U.S. and Canadian investments accounted for 65 percent of Newmont's net income. Many in the industry considered this a positive development, since the early 1970s were a period of increased mine nationalization as well as political machinations that made foreign investments riskier than usual.
Newmont's direction in the 1970s was toward becoming more of an operating company and less of a holding company. An ambitious expansion program was undertaken at Magma, which quickly became Newmont's chief source of revenues, accounting for about 36 percent in 1972. This expansion was largely accomplished by investing around $90 million in 1971 in two Arizona locations, Superior and San Manuel, including $18 million for a new electrolytic copper refinery at San Manuel. The expansion raised the combined output of San Manuel and Superior to 145,000 tons of copper in 1972. By that same year, 78 percent of Newmont's net income was generated by companies operating inside Canada and the United States. Foreign interests contributed about 28 percent of the company's revenues, with Tsumeb, O'okiep, Palabora, and Southern Peru Copper leading the way.
The 1970s were a roller-coaster decade for Newmont. Technical problems plagued the new smelter at San Manuel in 1972, and new anti-pollution laws required the installation of another $30 million worth of equipment. By 1973, however, these and other problems were largely solved. Labor problems at Granduc improved, and Newmont's other Canadian mine, Similkameen, enjoyed a smooth first year of operation, producing near its capacity. In 1974, Newmont set a net earnings record of $113.6 million. That same year, the company paid $28.5 million to increase its interest in Foote Mineral Company to 83 percent of voting shares. The Foote acquisition gave Newmont control of the non-communist world's largest deposit of spodumene ore (used to produce lithium), located at Kings Mountain, North Carolina.
Between 1975 and 1978 copper prices plummeted, dropping from $1.55 a pound in 1974 to as low as 50 cents--resulting in the selling price of copper falling below its production cost in the United States. In 1977, Newmont led a consortium of six companies in purchasing Peabody Coal Company from Kennecott, which had been ordered in 1971 by the Federal Trade Commission to divest itself of what was the largest coal producer in the United States. Newmont's share in the consortium, which called itself Peabody Holding Company, was 27.5 percent. With copper prices in free-fall, however, Newmont's net income declined to $5.1 million in 1977, a drop in earnings also affected by a $15-million strike at Peabody and the closing of the Granduc mine.
Newmont recovered somewhat toward the end of the 1970s. Costs were cut by suspending operations at Idarado Mining Company of which Newmont owned 80 percent, as well as at the Gamsberg zinc project, a South African joint venture. In April 1978, the end of the nationwide coal strike also allowed Peabody to become profitable once again. The Newmont Oil subsidiary began to benefit from the price deregulation of new natural gas, and higher gold prices were beneficial to the wholly owned Carlin operation. Even the often sluggish Atlantic Cement Company showed a profit in 1978 after losing about $400,000 the previous year. By 1979 gold was beginning to play an increasingly important role for Newmont. With high gold prices, it took only 30 months for the Telfer gold mine (70 percent owned by Newmont) in Australia's Great Sandy Desert to pay back the $23.5 million laid out in development costs. In fact, Newmont earned more from gold in 1979 than it had from all its operations the year before.
In 1980, Newmont began processing gold ore from its Maggie Creek mine, 14 miles south of the main area of the Carlin operation. The open pit orebodies at Maggie Creek were estimated at 4.8 million tons of ore containing about 440,000 ounces of gold. Then, less than a mile from Maggie Creek, Newmont discovered Gold Quarry--the twentieth century's most important gold strike--which was estimated to contain over 8 million ounces of gold. In 1981, while Newmont was still assessing the importance of the Gold Quarry discovery, shares of Newmont were being acquired by Consolidated Gold Fields Plc. (CGF), a British mining company. Malozemoff was able to reach an agreement with CGF under which CGF would end up holding 26 percent interest in Newmont, but would not attempt to increase that share. This agreement was changed in 1983, allowing CGF up to a 33.3 percent interest in Newmont as well as a maximum of three representatives on Newmont's board instead of the previous limit of two.
Newmont purchased the Miami, Arizona, copper operations of City Service Company in 1983. The operations included the Pinto Valley open pit mine, whose annual capacity rated about 70,000 tons of copper contained in concentrate. Malozemoff ended his long tenure as Newmont's chief executive officer in September 1985 and was succeeded by Gordon R. Parker, who had been named company president ten months earlier as well as president and chief executive officer of Magma. Malozemoff, 75 years old at the time, retained his chairmanship of Newmont's board. In October, Newmont reorganized its management structure, consolidating its operations into four groups headed by executives with global responsibility: non-ferrous metals under David C. Ridinger; Carlin Gold Mining Company and the company's 70 percent interest in Telfer gold mine under T. Peter Philip; lithium and industrial minerals under Thomas A. Williams; and energy operations, including Peabody and Newmont Oil, under Edward P. Fontaine.
Carlin Gold Mining Company's name was changed to Newmont Gold Company in 1986. The following year, corporate raider T. Boone Pickens and his investment group, Ivanhoe Partners, attempted a takeover of Newmont, making an offer of $95-a-share for the 90 percent of Newmont they did not already control. The takeover attempt was thwarted, however, when in one day CGF hiked its share of the company up to 47.7 percent, a move made possible by Newmont's announcement of a $33-a-share dividend payment as part of a new restructuring plan. In order to compensate for the cash drain the payout created, Newmont began a series of selling off its properties. Magma Copper was spun off to Newmont shareholders, saving Newmont the costs of modernizing Magma's facilities. At the end of 1987, the company sold its 80 percent interest in Foote Mineral for about $74 million. Another $350 million was brought in by the sale of Newmont's 4.2 million shares of Du Pont stock. Finally, all four mines in South Africa held by Newmont were sold for $125 million.
The main consequence of Newmont's restructuring was the shift of the company's focus to gold exclusively. In 1988, the company sold its interests in Newmont Oil and in both Canadian ventures, Sherritt Gordon and Similkameen. With the 1990 sale of its 55 percent interest in Peabody, Newmont had shed virtually all of its non-gold holdings and was the largest gold producer in North America. In 1991, a merger was arranged, and then collapsed, between Newmont and American Barrick Resources. American Barrick had acquired a 49 percent interest in Newmont in a deal the previous year with Hanson Plc., which had acquired the shares when it took over CGF in 1989.
In 1992, Newmont continued to actively explore for gold, both in North America and abroad. A joint venture was agreed upon with the Republic of Uzbekistan for producing gold at Muruntau, and similar gold exploration ventures were initiated with Costa Rica, Thailand, Peru, and Indonesia. In the United States, Newmont acquired the rights to two prospective gold properties, Grassy Mountain in Oregon and Musgrove Creek in Idaho. In light of Newmont's record of flexibility and good timing with regards to various geographical and metallurgical factors, it seems likely that many of these upcoming ventures will prove to be successful.
Principal Subsidiaries: Newmont Gold Company (90.1%); Newmont Exploration Limited; Resurrection Mining Company; Idarado Mining Company (80.1%); Dawn Mining Company (51%).
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