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20 Sustaining Success As the gold market gained strength, passing a ten-­ year high in 2003, surging above $500 an ounce in 2005 and continuing to climb, Newmont’s strategy looked prescient. “We now have a new paradigm,” boasted Randy Eppler, who had just retired as the company ’s vice president of corporate development.1 “After 9/11 and with a weakening dollar, gold has reestablished itself as a major currency and Newmont has established itself as the industry leader.” It stood tall, after the Normandy and Franco mergers, as the world’s largest gold miner. Life at the top, however, is not always easy. “One might have the perception that with gold above $600 an ounce, a person sits back, puts his feet on the desk and waits for the money to roll in,” says Thomas Mahoney, vice president and treasurer since 2001. “But it isn’t that way. The stress on the organization is as great, or greater, than it was when the gold price was low.” When gold was rock bottom, investor expectations were low. “People would say, ‘They didn’t do well in this quarter, but who can do well in a $255 gold environment?’ Today the market has less tolerance for any sort of performance difficulty. If you don’t hit production targets, there’s almost no excuse .”2 In 2006, Newmont began missing its guidance to investors and repeatedly lowered its quarterly projections. Production from 2004 to 2007 fell 30 percent to 6.2 million ounces (with Newmont’s equity share being down 25 percent to 5.3 million), while costs applicable to sales nearly doubled to $406 an ounce. Equally frustrating, for all its non-­ hedge rhetoric, Newmont had stealth hedges and when the long-­ awaited bull market in metals arrived, the company couldn’t deliver the leverage it had promised. With higher prices, margins were a record $300 an ounce in 2006 and only slightly lower in 2007, but that wasn’t enough to satisfy Wall Street, which expected far better. The stock price fell to $38 a share in mid-­ 2007, and the premium over its archrival, Barrick, nearly evaporated. Sustaining Success 333 Higher costs for energy, labor, tires, steel, and other inputs were impact­ ing the entire industry. “Suddenly $400 is the new $200 when it comes to costs,”3 lamented CEO Wayne Murdy. Also important, the company’s largest operations were aging, with declining grades and increasing waste-­ to-­ ore ratios. In Nevada, the average grade dropped by a quarter between 2002 and 2007, from 0.1 ounce per ton to 0.076. In 2002, the Nevada mines blasted out and hauled away 3.8 tons of waste for every ton of ore; by 2007 it was 4.5. Combined, it meant that 92 tons of rock had to be mined for each ounce of gold produced, nearly 80 percent more than the 52 tons required five years earlier.4 At Yanacocha, each ton of ore carried an overburden of 0.37 of a ton in 2002. Five years later, the waste-­ to-­ ore ratio was 1.13-­ to-­ 1, production had dropped by half and cash production costs of $345 an ounce were up 65 percent. “In the past if things went sour elsewhere we could pull a rabbit from the hat at Yanacocha. Well, Yanacocha is mature now and there are no more rabbits,”5 explained William Zisch, vice president of planning, in 2007. Adds Murdy, “I will tell you with perfect hindsight that I wish we had gone slower at Yanacocha. I think we pushed that harder than we had to.” The consequence: depleting reserves and huge stress on the community. Knowing that its mines were maturing, the company had counted on new projects to refresh its production stream. Then two large projects in Nevada, Leeville, an underground mine that faced difficulty obtaining skilled workers , and Phoenix, a copper and gold deposit with complex geology, fell behind schedule as capital costs escalated. Phoenix became an embarrassment. J. M. Rendu, the company’s former reserve expert, was called back from retirement to assess the problem. He found that the company had tried to rush into production before technical issues were resolved in the hope of getting a better rate of return. Furthermore , Newmont had relied on the drilling results of the previous owner, Battle Mountain Gold, and did not do its own ore sampling until after production began and it found itself in trouble. While Wall Street...

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