Newmont is the second largest gold producing company in the world. Can you tell us about Newmont's philosophy?
Newmont is a large international gold producer. We've been around for 80 years and we're based in Denver, Colorado in the USA. In addition to our operation in Uzbekistan, we have three core operations in the US (Nevada), Indonesia and Peru. Our philosophy and strategy is to primarily operate a few, very large mines. We do not want to operate a lot of small mines around the world. Our operation in Northern Nevada, which is Western United States, gives us a stable domestic base of operation. But as we look at the future of mining, we know that it's going to take us into a lot of different countries around the world because there are more opportunities and they have been less explored. That's really what brought us to Uzbekistan in 1990-91.
We knew it was a region with a lot of gold, and that it has very large exploration targets, which meets one of our basic criteria.
We operate the largest gold mine in South America, Minera Yanacocha, in Peru. In Indonesia, we operate a large copper and gold mine, which we've developed in cooperation with Sumitomo Corporation.
The last years have been very challenging for a lot of gold producers and the gold price dropped to a twenty-year low last year. What has been Newmont's focus to face this challenge? In September 1999, when 15 European Central Banks decided to limit their gold sales for the next 5 years, what impact did it have on Newmont and to what extent did it restore the confidence in gold worldwide?
Obviously the last three years have been very difficult for the gold industry and it goes to our core strategy of being involved in just large mines so we can get very good economies of scale. When we look at our cost structure, we constantly try to drive out inefficiencies and lower costs. We are one of the lowest cost producers in the world, both from a cash cost standpoint and also from the standpoint of our total cost, including depreciation and amortization.
While Newmont has from time to time made significant acquisitions and we are involved in one right now, our basic core philosophy is one of exploring and finding the deposits ourselves. We have the most successful exploration team in the industry. For example, over the last ten years our cost of finding gold has been between 11 and 12 dollars an ounce. And, when we add in development costs, we can keep the total cost to about 50 -60 dollars an ounce. That gives us a very low total cost as opposed to if you go out and make acquisitions. It is not uncommon for typical acquisitions in this industry to cost a hundred dollars an ounce or more. So, that cost goes into the total cost of the operations.
We also have a big commitment to metallurgical processing that allows us to be a low cost producer. So, in a gold price environment like this, our focus is generating strong cash flows so that we can continue our development.
We have a very significant exposure to the gold price, probably the most leverage of any of the major gold producers. We do not hedge our gold, so when the price goes down it gets tight for us, but when the price moves up we have a significant upside potential. In the US, when you look at our share performance, it closely correlates to the gold price. That is a little more risky, but shareholders that we talk to are looking for that type of exposure.
With respect to your question on the agreement by
the European banks, we saw that as a very significant
step for the industry. Obviously, there was a short-term
change in the price, a very significant spike, but
this is something that has more significance over
the long term. There has been a move that we've
been seeing over the last ten years of portfolio
management by some of the central banks. So, there
have been sales of gold into the market that have
increased the supply available and served to lower
the price. Hedging in the industry also hurts the
market because gold is leased from the Central banks
at a very low rate. Frankly we do not understand
why the Central banks do it, because to us it is
kind of shooting themselves in the foot. But there
was a dialogue started about three years ago between
the chief executive officers of a number of the
major mining companies and some of the central bankers.
That dialogue has proved to be very beneficial.
It has given each side a little better understanding
about the other's objectives. In reality, we are
all selling gold, so we have a lot more in common
than one would normally think. So, we view the agreement
of last year, the so-called Washington Agreement,
as something that was kind of a first benefit, or
tangible evidence of these discussions. I think
that the central bankers surprised themselves that
they could get that sort of cooperation. |
Nevertheless, it clearly had a limited impact over the last year. In fact, we continue to see real weakness in the gold price, but that also has to do a lot with the strength in the dollar. There is a tremendous inverse correlation between the price of gold and the strength of the US dollar. Gold prices are at record levels in Australia and South Africa. Forty percent of the world's production is in countries where, because of their currency weakness, gold is in an all time high price. It is the highest price it has ever been in South Africa.
Can you tell us more about your operation here in Uzbekistan? The production here rose 45% last year, can you give us some more figures on the operation in Uzbekistan?
The mine is not really a mine but a processing plant. We are processing low-grade ore that was previously mined by the Navoi Combinat at Muruntau. When the project was originally conceived, there was a commitment by the Uzbek government, by our partners, of 220 million tonnes. The project was designed to process about 13.8 million tonnes per year. Last year we produced over 500,000 ounces of gold. This year, with declining grades, production is expected to be about 470,000 ounces.
From our standpoint we've had tremendous cooperation with the Uzbek government. We had the advantage of doing the first major foreign investment in the country and we actually started discussions here before the breakup of he Soviet Union. In 1991 we had a technical team here and they were looking at the stockpiles at the invitation of the local geology committee. We proposed using heap leach technology to process these low-grade stockpiles. In February of 1992, we signed a joint venture agreement. I think we had the advantage that when the government declared its independence, this was something that was high on the radar screen. There was an individual assigned by the president to head the negotiations on the part of the Uzbek government. So we got kind of a quick treatment and through that we formed the joint venture. We conducted a feasibility study for the balance of that year. I got involved in very early 1993, when we started our discussions with the EBRD on financing the project. We put together a consortium of 15 banks, that included the big three Swiss banks (now the big two Swiss banks), French banks, British banks, German banks, the Bank of Austria. So, it was a pretty broad section of European banks. We also had two American banks. It was kind of everybody's first taste of Uzbekistan. Everybody wanted to get involved and it was a very interesting process.
Our experience shows that Uzbekistan is still emerging and developing its institutions. The Uzbeks are tough negotiators. I think some of it goes back to their heritage. But, once we had an agreement, we never had trouble with compliance.
It is very interesting now because the gold prices are so low. We are making the adaptations to the agreement now to recognize the low gold price. We've had a very good sharing experience with Uzbek government and with our two partners that are the entities of the Uzbek government.
What are your future visions for your operation in Uzbekistan and this part of the world. How do you see Newmont's future role in this whole Central Asian area?
We targeted Uzbekistan because geologically there is a lot of gold here. We saw a good opportunity to get involved early in the project, but our vision is long-term because mining is a very long-term business. So, there is no such thing as a quick profit, unless you are a stock manipulator. So, we view this as an ongoing process, with Uzbekistan in its very early development as an independent state. They are gradually moving toward a free market economy, so it is not going to happen overnight. We as a company are prepared to make additional investments here. Our experience has been good and we are looking at a second project right now called Angren. In fact, we met yesterday afternoon with the Prime Minister, Mr. Sultanov. We looked at this project in 1996 -1997, but after the gold price dropped, we backed away from it. So the timing wasn't right. This year we've come back with some alternative proposals. So, that looks encouraging. Eventually, we would like to see privatization of the mining industry in Uzbekistan. I do not think that will happen tomorrow, but it will eventually happen and when it does, we would like to be a part of it.
NOTE: World Investment News Ltd cannot be made responsible for the content of unedited transcriptions. |
Newmont Mining Corporation