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10 Shareholder Value Like many great actors who remain too long on center stage, Plato Malozemoff had drawn the last applause from his company’s performance. “Newmont was sort of a ragtag collection of assets at the time I appeared on the scene,”1 says Gordon Parker, who, during his first month as chairman, wrote down the value of his inherited portfolio by $97 million. Combined with an even larger operating loss from its copper mines, Newmont reported a net loss of $35 million for 1985, Malozemoff’s last year at the helm. It was the company’s first red ink since the Depression. While the copper market was depressed worldwide, Newmont’s problem was centered in Arizona, where it cost Magma 80 cents to produce a pound of refined copper that could be sold for only 66 cents. A new low-­ cost SXEW plant to process surface-­ mined oxide ores began operation at San Manuel in May 1986, and significant labor concessions that year promised further cost reductions. But after having lost $300 million over the previous six years and facing another $200 million in mandated expenditures for pollution control by the end of 1987, Newmont’s patience had run out. Furthermore , years of studies had produced no assured road map to profitability. Unlike his predecessor, Parker sought consensus within Newmont’s management team and was willing to think out loud as he grappled with major decisions. He also credits others for most of the ideas the company adopted. The solution to Magma’s problems—or better stated, Newmont’s way to extricate itself from those problems—came from an unlikely source: James Hill, the company’s bright but combative vice president of corporate relations. “We were all trying to figure out what to do. Gordon called a bunch of us into the boardroom and we sat around the table giving our ideas. When it got to me, I said we should spin it off,”2 Hill says. Reasoning that Magma could not be sold, he proposed giving it to shareholders as a dividend. Parker, executive vice president Richard Leather, and CFO Ed Shareholder Value 149 Fontaine agreed; others, including Malozemoff, still a director but without power, were aghast. Embedded in the former CEO’s philosophy were two maxims: never sell reserves and, in time, copper markets always recover. “Newmont people were just in love with mining,” says Hill. “They thought that having their hands in many mines was what was important. But investors couldn’t understand the company; they wanted clarity.” Malozemoff and others felt the company’s diverse investments meant that a down cycle in one commodity would be offset by good results in another, giving the company long-­ term stability. Hill argued that investors wanted focus and an opportunity for personal financial gain, not corporate longevity. Shareholders , particularly institutional investors, could create their own portfolio by buying stocks in different companies; they didn’t need Newmont to provide diversification. Additionally, if a stock threatened to tank, it could easily be sold from an investor’s portfolio whereas a company like Newmont, holding a major piece of that same company, would find disposal much more difficult . Leather recalls Hill’s comment at a board meeting that summer: “Like it or not, we are in two businesses, the business of running the company and the business of managing the stock.”3 Magma’s continuing losses were making the latter task much more difficult. In March 1987, Newmont implemented Hill’s proposal. Pinto Valley Copper was merged into Magma, making it the second largest copper producer in the country. In addition, Newmont contributed $150 million in inter­ company debt to the new company and converted another $200 million of debt into Magma preferred stock. It then spun off 80 percent of the recapitalized company on a share-­ for-­ share basis to shareholders while retaining a 15 percent interest in Magma. Five percent of the stock was set aside as an incentive for Magma’s newly independent executives. With the debt removed from its books, Magma could invest in a new smelter necessary to meet environmental requirements and shareholders would be in a position to benefit when the copper market recovered, which it did the next year. Coupled with the earlier sale of Atlantic Cement and the decision to dispose of Foote Mineral, the spin-­ off of Magma reduced Newmont’s size by half in terms of sales4 and Parker set about to rebuild the company. “We were trying to...

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