Moydow Mines fka MOY

[Ed Monton]

Newmont talking about Ghana again:

Newmont's Murdy bares his soul
Gold miner chief talks exploration, valuation, takeover

By Thom Calandra, CBS.MarketWatch.com
Last Update: 12:02 PM ET Aug. 22, 2003


SAN FRANCISCO (CBS.MW) - A year ago, Newmont Mining CEO Wayne W. Murdy was sitting at a luncheon table, listening to his field geologists discuss gold prospects in Turkey.

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The guys in the field, against a backdrop of site maps and geological surveys, were ebullient about the country, where Newmont (NEM: news, chart, profile), the world's largest gold miner, had inherited the Ovacik Gold Mine from its merger with Australia's Normandy Mines.

Some of the engineers were even reporting they were making steady progress with the tribal councils in that politically volatile country, where local officials often hold sway over a multinational company's strategic goals, even if they are as simple as extending an open-mine pit to increase production.

"If you don't have land you're nothing but a rag picker," Jeff Huspeni, a vice president of mineral district exploration, was saying at the time. After years of indifference and high unemployment levels, village leaders were inviting mining executives to their ritual tea gatherings.

Murdy interrupted the presentation, taking place at the miner's headquarters city of Denver. "Very good," Murdy said, eyeing analysts and newsletter editors at the luncheon, all of them with their pens at the ready, "and our exploration team knows we make financing decisions based on economic and geological reasons."

A year later, Murdy, who left the oil business more than a decade ago to become Newmont's chief financial officer, is saying the same thing. If what Murdy told me this week bears out, shareholders are likely to discover the company's 30 percent-plus gain thus far this year on the NYSE and Toronto stock exchanges is just the tip of the drill bit.



Newmont's shares are outpacing gains made by other 2 million-ounce-plus gold producers -- year to date and for the past 12 months. Wall Street banks, and individual investors, are coming around to the belief that Newmont will boost proven and probable reserves, the basis for what folks are willing to pay for a gold mining stock, by large margins in coming months and years.

"We look at everything out there and if we see something that fits with our strategic goals, we do it," says Murdy, who has an oil man's obsession with replacing depleted reserves. "With exploration, if you do a good job of funding it, and have good people who understand their risks and a good budget, you can have success."

Murdy, in a wide-ranging interview, says he has high hopes for at least two of the company's five major production areas: Nevada and Ghana. Nevada, of course, has been a lucrative source of gold for Newmont and others, thanks in large part to the Carlin Trend. Newmont began mining in and around the town of Carlin, Nev., in 1965. Reserves in Nevada are estimated at 30 million ounces.

"In 1992 when I came here, our production was about 1.6 million ounces, and at that point in time we had 20 million ounces of reserve in Nevada," says Murdy, who hailed from Getty Oil and Apache Corp. at the time. "Well, we had prospects and lots of debate at the company, and people saying if we get to much higher levels, how were we going to replace the ounces. Now, we are producing more than 7 million ounces a year and we are replacing those reserves."



The Wall Street crowd, and its counterpart in Toronto, are gaga about Newmont, which at $14 billion or so of market capitalization is the world's largest gold-mining equity. The company's shares were the third best gainer in the entire S&P 500 Index last year, when Newmont logged its first yearly profit in three calendar years.

"Newmont already is the stock that everyone wants to own," says James Turk of Freemarket Gold & Money Report in New Hampshire. Turk, a former commodities financier, is considered one of the sharpest mining and bullion analysts away from Wall Street.

"But we haven't seen anything yet," says Turk about Newmont's $36 shares. "If gold trades in the $400s in September and October as I expect, then I think it is reasonable to expect Newmont to trade at $55 or higher."

Turk says Newmont managed to pull off a tricky, $4 billion merger with Normany and Canada's Franco-Nevada Mining last year, combining management teams and steadily reducing its inherited hedge book of forward sales. Coming with the merger was the presence of exploration wizard and gold fanatic Pierre Lassonde, a nattily dressed executive who is legendary in the bullion world for rolling up his shirt sleeves and successfully pinpointing exploration prospects.

Lassonde raised eyebrows this month when he forecast sharply higher gold prices at an Australia speech, in part because of Middle East investors who see bullion as a logical alternative to owning dollars, euros and yen. A gold dinar, a new currency, also will boost demand for the metal, he said.

Lassonde, Newmont's president, jets around the globe, looking for ways to increase gold grades, lower operating costs and identify properties and companies that could increase Newmont's 83 million or so of reserves.

"Pierre has a term," says Murdy, who spoke to me from Denver. "It's 'grow or go.' I have one of my own, too: all ounces are not created equal."

Murdy says he is convinced both Nevada and Ghana will have investors raising their eyebrows before long. Last year, Newmont achieved a little better than 1-to-1 reserve replacement. Could Newmont exceed even that healthy ratio?



Says Murdy (and I quote extensively here): "I've always been a little leary of west Africa but am slowly becoming comfortable, with Ghana certainly. In Peru from a geologic standpoint I like it, and I concede we have done exploration in Ecuador and not been successful. You can only be in so many places."

Murdy continues, "I like northern Nevada and we will be there several more generations. In Peru we have 34 million ounces gross and we have 54 percent of that. We'll see where we end up in Ghana with total reserves, but we are very excited about that. In Australia we are very excited, too, but the deposits are spread out."

On the notion of Wall Street correctly gauging what a gold mining stock should be worth, Murdy says, "The Street does not really know how to evaluate that 525-square miles we control down in Peru, for instance, and how much is it worth. I have been in the natural resource business my whole life and you can never have enough land, especially when our terrific geologists come back from their trips. You are going to have some very pleasant surprises in northern Nevada."



Murdy, by the way, acknowledges that Lassonde is hunting for takeover candidates - everyone in the gold business is these days as miners suffer what the pros call "reserve rot," or depletion. Not helping the building of reserves: environmental permitting, geopolitical challenges and lower exploration budgets. ("Remember, seven years ago, the entire gold mining industry's exploration budget was something like $3 billion, and now it's $1 billion or so," he says.)

Still, Murdy says he would prefer to grow reserves "via the bit." That's drill bit, for you ordinary folks out there. He says, "If I am a Newmont and I am funding something with $75 million of exploration money a year and $30 million of development money, we get a lot of shots, and our team understands that. Newmont in the past 10 years has had only one year where it has not replaced reserves with the drill bit."

Not everyone is convinced Newmont won't go knocking on doors.

Turk, the mining analyst, says Newmont will replace reserves "from three sources: using its stock to make new acquisitions, raising reserves from lower grades that will become economic as the gold price rises, and making new discoveries on its vast property portfolio, particularly in Nevada and Australia."

One well-placed analyst told me Newmont is regularly "kicking the tires," at companies in Canada, Africa and even the good old USA.

As for exploration, the company had 83 drill rigs badgering the earth in this year's second quarter. These days, with gold mining shares at six-year highs and many small companies doubling and tripling their stock-market values in the space of three months, Newmont's global efforts make the company's shares nearly as attractive as a pure-play exploration company based in Vancouver, Canada, says Turk.

Murdy says Newmont will continue to reduce the amount of gold it sells forward in an increasingly popular practice known as de-hedging. Such de-hedging by companies that once hedged their production via the use of derivatives and forward sales contributes as much as 20 percent of all gold purchases worldwide.



I'll have more on Newmont -- and potential takeover candidates in the mining industry in general -- in subscription service The Calandra Report, which will next be distributed to paying subscribers Sept. 3 or Sept. 4.

(Will he plug MOYDOW I wonder??)

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&gui...