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17 Faith, Hope, and Hedging In 1997 CEO Ron Cambre started whistling past the graveyard. “It is the nature of those of us in this business to remain bullish on the gold price,”1 he told shareholders in his annual report letter published that March. His assertion followed a drop in the gold price to $350 from $415 an ounce during the previous twelve months and a drop in the company’s stock to $43 from $55 a share. Yet, the company had invested $1 billion over the prior three years in mine development, was pursuing permits for the $2 billion Batu Hijau project in Indonesia, and only days earlier had committed almost $2.5 billion to acquire Santa Fe Pacific Gold. If it didn’t have faith, what was there? A year later, with gold at $300 and the stock trading at $27, he told shareholders , “There are sound reasons to believe that such fears [a further decline in the gold price] are overblown.” Earnings in 1997 of $68 million, while down 30 percent from the prior year, were still better than most in an industry that suffered losses in the declining gold market. Newmont coped by significantly reducing expenditures and cutting the quarterly dividend to three cents a share from twelve cents—the first reduction in fifteen years. By March 1999, gold had dropped to $280 an ounce and the stock price was down to $17.50. Cambre’s letter to shareholders stated: “While our faith in a market upturn is soundly grounded, it also necessitates a disciplined and creative approach to managing our cash flow until the price cycle turns.” During 1998, the company wrote off $425 million in assets impaired by the gold price, primarily in Nevada, and reported a loss of $393 million, its first loss since 1985. Yet, it retained an investment grade credit rating. The bright spot in the company’s portfolio was Minera Yanacocha in Peru, in which Newmont held a 51.4 percent interest. By 1998, with annual production of 1.35 million ounces of gold, the company’s share—690,000 ounces—amounted to 17 percent of its total output, but a much higher percent of earnings. Blessed with a low strip ratio, high recovery rate, and 268 chapter seventeen minimal processing, cash production costs of $95 an ounce were less than half the $200 average for the rest of Newmont’s mines. In just five years, Yanacocha had become the largest gold operation in South America with four mines, three leach pads, and two gold recovery plants. Reserves, which had increased every year despite higher production rates, stood at 21 million ounces. Seven million ounces were added to reserves with the discovery of the La Quinua deposit, a huge valley filled with 275 million tons of low-­ grade glacial till that centuries earlier had been pushed off nearby mountains . By just scooping it up and placing it on a leach pad, the gravel-­ like material flowed gold. “If the price goes any lower, we’re all moving to Peru since it will be the only place left that’s profitable,”2 Cambre told employees only half in jest. Then, from that bed of roses came the smell of manure. In September 1997 the Peruvian Supreme Court voted, against all expectations, to hear an appeal by the Bureau de Recherches Géologiques et Minières (BRGM) and its ally Normandy Mining of a Superior Court ruling that granted Newmont and its Peruvian partner Buenaventura the right to acquire the French agency’s 24.7 percent interest in the mine. At the same time, the company began hearing rumblings that the French were trying to pressure the court, or as Larry Kurlander, Newmont’s senior vice president of administration, told the New York Times, “that the French were behaving inappropriately in the litigation,” which was “unseemly at best and corrupt at worst.”3 Since joining Newmont in 1994, Kurlander had been making the rounds of the state and commerce departments and various embassies in Washington to advance Newmont’s overseas interests. He now began contacting people in government and diplomatic circles in Lima who might have their ear to the ground. In early January 1998 the Supreme Court, which is divided into panels, ruled 3–2 against Newmont. But the court required a two-­ vote majority for a verdict, so a sixth judge was appointed to the panel. Kurlander and Newmont general counsel Joy Hansen set up temporary quarters in Lima...

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