Going for Gold: The History of Newmont Mining Corporation

18. Pinnacle

18 Pinnacle Newmont shareholders began to see a little sunlight in 2001 as the company’s stock price rose 12 percent against a 13 percent drop in the overall market as measured by the Standard & Poor’s 500 Index. The next year was considerably better as the stock jumped 52­ percent, the best showing by a large company on the New York Stock Exchange and the third-­ best performance by any company in the S&P 500. At $29 a share, this still left long-­ term shareholders underwater, but the change in outlook was a large psychological boost. Part of that reflected an improvement in the gold price, which broke through $300 in April 2002 and climbed another $30 an ounce by year-end. Part was due to Newmont’s non-­ hedging philosophy and its commitment to provide shareholders with the maximum leverage to an upward swing in the commodity price. And part was a positive response to the largest merger in the company’s history and one of the hardest fought in the gold industry. In simultaneous transactions in February 2002, Newmont acquired two very different companies—Franco-­ Nevada, a Canadian-­ based minerals royalty holder and one of the industry’s best-­ performing stocks, and Normandy Mining of Australia, the leading producer on that gold-­ rich continent and a thorn in Newmont’s side during years of litigation over Yana­ cocha. Franco brought an entrepreneurial spirit and a boatload of badly needed cash, while Normandy came with some good properties and even better prospects. The three-­ way transaction vaulted Newmont for the time into the number one position among gold producers, with production, reserves , market capitalization, and shareholder potential surpassing those of all of its rivals. It was an improbable combination resulting from Newmont CEO Wayne Murdy and Franco executives Seymour Schulich and Pierre Lassonde finding that their paths converged after having exhausted other options for improving their stock price at the bottom of the gold cycle. At age fifty-­ six Pinnacle 283 Murdy had spent eight years with Newmont, six as chief financial officer and two as president, before becoming the company’s seventh chief executive in January 2001. An avid surfer in his youth, he graduated from California State University at Long Beach, spent time in public accounting, and rose to executive positions with Getty Oil and Apache before joining the gold company. While retiring CEO Ron Cambre was accustomed to viewing the world from the balcony of life, Murdy was down-­ to-­ earth, approachable, and often showed up for work in a golf shirt. “People respected him because he was genuine,” says retired treasurer Patricia Flanagan, who found his “optimism very inspiring for everyone.”1 Settling behind his desk on the twenty-­ eighth floor of the Wells Fargo Bank Building with a panoramic view of the snow-­ capped Rocky Mountains , his thoughts could easily have turned to his retreat in Vail and the ski slopes he loved. Instead, he contemplated Newmont’s future and realized that the company needed a jolt to get back into the race. Cost-­ cutting and productivity improvements had gone about as far as they could go. Exploration and technology would continue to add value but were unlikely in the near term to move the stock price. Without a significant increase in the gold price, the company had to look elsewhere. “I looked at the company through the eyes of Wall Street, and the investment community was not very pleased with us,” he recalls. “We weren’t in dire straights by any means, but we had cut the dividend, the stock price was down to the low to mid-­ teens, and we weren’t doing much for our shareholders . Wall Street was critical of us because of our high debt and high political risk.”2 Peru still looked stable after President Alberto Fujimori left­ office under a cloud of scandal, but Indonesia post-­ Suharto was in a state of turmoil. The currency had collapsed, there were riots between Muslims and Christians, and a power struggle, called Reformasi, was under way between the provinces and the central government in Jakarta. “I thought I could address both of Wall Street’s concerns with an ac­ quisition,” says Murdy. “If we could acquire a company with some cash and low debt, it would improve the balance sheet, and if the company had most of its assets in North America or Australia it would improve our political­ profile.” Assigned to scout out possibilities, Randy Eppler, vice president of cor...