Newmont CEO sees more mergers in gold sector
Wed Mar 8, 2006 8:28 AM EST
By Eric Onstad
JOHANNESBURG (Reuters) - The head of Newmont Gold Corp <NEM.N>, which lost its top ranking in the gold industry after a rival's takeover, says the sector still has scope for more merger activity.
"We probably still have a fair way to go," Chairman and Chief Executive Wayne Murdy told Reuters in an interview late on Tuesday when asked about the scope for more consolidation.
Canada's Barrick Gold Corp <ABX.TO> became the world's biggest gold producer, pushing Newmont into second place, after it recently swallowed rival Placer Dome.
Some industry players have doubted the scope for the biggest gold groups to grow much more due to the increasing difficulty in finding new deposits and replacing production from mines that run out of ore.
Although this was a consideration, clever firms could still grow bigger, Murdy said.
"I can remember when we did our merger in 2002 with Normandy and Franco-Nevada and people said at that size you'll never be able to replace, but we've done so every year," he said from his firm's headquarters in Denver.
"If you manage your risk properly and properly capitalize your exploration effort, I think you can continue to replace your depletion. It's hard to grow very fast and I think when you look at the growth in the industry it primarily comes from acquisitions."
When Newmont looked at further takeovers, it had to be strategic. "We try to focus on things...primarily in areas where we already operate in or areas where we want to operate."
One reason for more consolidation was that only huge mining firms had the bulk to develop mines that were coming under much more scrutiny and becoming more costly.
"Society is raising the bar and If you look out into the future I think you'll see fewer mines developed, they'll be larger mines because they will have to bear the full cost of both the environmental and social impacts that they cause," he said.
"The day of the small miner coming in and being able to develop a mine...operate it just on the shoestring and at the end of the life of the mine there's no money left...I think those days are over."
Junior mining companies would still be instrumental in exploration, but more of their discoveries were being acquired by major mining firms, he said.
Murdy is also chairman of the International Council on Mining and Metals, a group of leading firms seeking to improve environmental and social standards in the sector.
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