Will T. Boone Pickens Jr. win the takeover fight for Newmont Mining? Probably not, but the contest already has demonstrated that even the most powerful companies are not immune from pressure in today's fast-moving markets.
Newmont isn't just any company. It is a holding of the worldwide mining combine controlled by Anglo American Corp., the world's largest gold producer, and DeBeers Mines Ltd., the world's largest diamond producer. The two South Africa-based companies are related--DeBeers owns 38% of Anglo, and Anglo owns 34% of DeBeers.
And, through a complex string of stock holdings, the two have a significant stake in Newmont Mining, a major U.S. gold producer and holder of copper, coal, oil and gas deposits.
It may also be a company of sizable hidden value. That, presumably, is why Pickens, the Texas oilman and financier, and a couple of partners--one of whom has gold mining interests--are offering $105 a share for Newmont, a company that three months ago was selling for less than $55. The Pickens group, called Ivanhoe Partners, is bidding for 28 million shares, enough to give them 52% of Newmont, which analysts value at anywhere from $105 a share to $159 and even $197 a share.
Why such a variance? "It all depends on estimates of the gold holdings in Nevada," says analyst Vahid Fathi of Prescott Ball & Turben. Indeed, stock market analysts have been saying for months that Newmont has more gold in a fresh prospect near Carlin, Nev., than it was telling the public about. Then, a week ago, under pressure from Pickens' initial bid of $95 a share, Newmont proved the analysts right. It raised its gold reserve and production figures in an attempt to boost the stock price and keep shareholders happy.
But the market didn't give the stock the desired lift. Traders were waiting for another shoe to drop, reasoning that Newmont's powerful owners--both direct and indirect--would do more to hold onto their U.S. gold mine. Newmont is 26%-owned by London-based Consolidated Gold Fields Ltd., which in turn is 28%-owned by Minerals & Resources Inc. of Bermuda, a holding company that is 39%-owned by Anglo American (which, of course, is 38%-owned by DeBeers--where members of the group's founding Oppenheimer family dominate the board of directors.)
Complex? Maybe, but not sinister. The pattern of minority ownership reflects tradition in the mining industry and a time when capital was scarcer than it appears to be today. Opening new mines, whether in Canada or Nevada or the gold rush of turn-of-the-century Johannesburg, was expensive. So mining companies financed each new mine by raising money from investors, while retaining a minority ownership as operating partner. It is a system through which the Oppenheimers' Anglo-DeBeers combine has been able to effectively control vast assets throughout the world--at a much lower investment cost than it takes to build a conglomerate or mount a takeover.
But Pickens' bid has shown the system to be vulnerable. After Newmont's initial response fell short, Pickens raised the ante last Tuesday, --hiking the Ivanhoe Partners offer, which is backed by Wells Fargo Bank and Drexel Burnham Lambert, to $105 a share.
Once again the market looked for a move from Newmont, or its London-based part-owner Consolidated Gold Fields. Newmont must respond or see the Pickens group--which includes a company, Galactic Resources, that owns land and mining claims adjacent to Newmont's Nevada gold prospect, walk away with its assets.
So what will happen? The Anglo group won't let a gold mine go, particularly one in the United States, where it has been increasing its investments as part of an unspoken but deliberate policy of building up business outside South Africa.
Most likely, Consolidated Gold Fields will protect Newmont by hiking its ownership--which will benefit Anglo by increasing its investment in the United States, and also make a dollar or two for Pickens and partners, who started buying Newmont at around $64 a share. A strange fight, with no apparent loser. Do these markets really produce gold for all?