Battle Mountain Gold Company
Battle Mountain Gold Company
Sales: $365.6 million (1996)
Stock Exchanges: New York Chicago Australian Frankfurt Swiss
SICs: 1081 Metal Mining Services; 1041 Gold Ores; 1044 Silver Ores
One of the largest gold miners in the United States, Battle Mountain Gold Company mines and processes gold, silver, and copper ore at seven mines on three continents. Formerly a unit of The Pennzoil Company, Battle Mountain was spun off from Pennzoil in 1985, emerging on its own with its mainstay Fortitude mine in Battle Mountain, Nevada. To increase its reserves and develop a replacement for Fortitude, the company entered a number of joint ventures with other partners to explore and develop mines, focusing its efforts on international projects. Battle Mountain established operations in Chile, Bolivia, Papua New Guinea, and Australia, recording its greatest success in Bolivia with its 88 percent-owned Kori Kollo mine. In 1996 the company merged with Hemlo Gold Mines, Inc., a union that created North America’s fifth largest, and the world’s fifteenth largest, pure gold producer. The most significant gains for Battle Mountain from the deal were two mines in Canada, the Golden Giant and the Holloway, both of which were located in the province of Ontario.
1985 Separation from Pennzoil
As an independent company, Battle Mountain got a head start in its corporate life, springing from the starting block as a spin-off of The Pennzoil Company in 1985. At the time of the spin-off, when Battle Mountain was let loose from the protective care of its parent company and given the opportunity either to succeed or fail on its own, a countrywide trend was changing the face of the gold industry. High gold prices early in the decade had attracted a number of new competitors who registered startling success by making what Financial World called “craftily financed acquisitions” and developing revolutionary methods to reduce mining costs. These upstart mining companies were able to capture market share from long-established competitors, entrenched in their old ways of turning bodies of ore into corporate profits. As in any industry, success gave birth to heightened competition, and a series of mining company spin-offs occurred, beginning with the 1983 spin-off of Echo Bay Mines, a subsidiary of conglomerate IU International. In the wake of Echo Bay’s spin-off followed a spate of mining company spin-offs from larger, diversified parent companies, including Freeport-McMoran Gold, Newmont Gold, St. Joe Gold, Sherr-Gold, and Battle Mountain Gold. Consequently, the head start Battle Mountain enjoyed when the company emerged from under the corporate umbrella of Pennzoil was an advantage enjoyed by many of its equally sized competitors. Together, these “new” mining concerns took their first independent steps in what was regarded as one of North America’s hottest growth industries, each attempting to forge a successful future with the inherited assets of its past.
From Pennzoil, Battle Mountain took its management, led by Douglas J. Bourne, group vice-president of mining at Pennzoil, and its original and flagship mine, Fortitude, located in the Battle Mountain area of Nevada. With Bourne serving as chairman and chief executive officer, Battle Mountain set out on its own, debt free and in pursuit of additional reserves. The search for new reserves figured as Bourne’s chief objective as he directed the company’s course following the spin-off. Although the Fortitude mine provided for Battle Mountain’s existence, accounting for virtually all of the company’s revenues and profits, it could not be expected to serve such a role forever. Its deposits were shrinking and its usefulness as a primary source for the company’s gold would not last much longer. Accordingly, there was a pressing need for new reserves, which the company recorded considerable success in fulfilling. During its first five years as an independent mining concern Battle Mountain increased its reserves five-fold, demonstrating the aggressiveness and astuteness that had distinguished the cadre of smaller and “smarter” mining firms midway through the 1980s.
Although Battle Mountain’s foundation rested on the Fortitude mine, the bulk of the new reserves secured during the latter half of the 1980s was located not only outside the borders of Nevada but beyond the shores of the United States. In foreign countries, gold was typically more inexpensive to mine than it was domestically and the number of potential exploration sites overseas was greater than in the United States, which provided sufficient inducement for Bourne to direct the company’s exploration efforts abroad. Battle Mountain worked mines in Australia, Indonesia, Papua New Guinea, and Chile, building up its reserves to create a replacement for Fortitude. Thanks to these developments and the company’s debt-free status once cut loose from Pennzoil, Battle Mountain remained profitable throughout its first half-decade of existence. Annual revenues increased from $93 million in 1986 to $294 million in 1989, and the company’s net income surged forward during the same period from $27 million to $54 million. Battle Mountain’s peak financial year during the 1980s was 1988, when sales eclipsed $300 million and net income topped $95 million.
Profitable and growing, Battle Mountain stood in good shape as it entered the 1990s, with the only nagging concern stemming from the inevitable obsolescence of its Fortitude mine. The push overseas had assuaged some of the fears of the flagship mine’s imminent demise, but the company had yet to locate a mine that could replace the production output of Fortitude. As the 1990s began, company officials were projecting that Fortitude could not be expected to survive “at full speed” for more than five years, which intensified the need to find a sizable body of ore that could inherit the role of Battle Mountain’s premier gold mine. In October 1990 Battle Mountain officials revealed that the company might have found such a mine. Located in Bolivia, the exploration site would be developed into Battle Mountain’s signature gold mine for the 1990s.
A New Mine for the 1990s
Battle Mountain had entered into the exploration of the Bolivian mine in a joint venture with other partners. Holding a majority interest in the project, Battle Mountain controlled a 51 percent stake in the South American mine, with Westworld Resources Inc., another Houston-based mining company, holding a 24.5 percent stake in the project and Zealand Mines S.A., a Bolivian partner, controlling a 24.5 percent interest. Westworld Resources had originally staked itself with a 50 percent interest in the speculative venture in 1982, enlisting the financial help of Bolivian investors. Battle Mountain was brought into the joint venture in 1989 as operating partner with one-third interest. Roughly a year later, the years of explorative efforts paid off with a significant discovery that augured well for Battle Mountain’s future. The mine, known as Kori Kollo, was expected to yield 4.1 million ounces of gold and 26.8 ounces of silver, a sufficient amount to increase Battle Mountain’s reserves 40 percent.
By the end of 1990 Battle Mountain was ready to go ahead with the Bolivian project, laying out $100 million in December 1990 to begin development of Kori Kollo. The production facility at Kori Kollo was scheduled to be completed in 1992, and as that opening date approached Battle Mountain significantly increased its interest in the venture. In mid-1991 Battle Mountain acquired Westworld Resources, thereby gaining the company’s chief asset, its 24.5 interest in Kori Kollo. Following the acquisition, Westworld Resources was organized as a Battle Mountain subsidiary named Kori Kollo Corp. In addition to acquiring Westworld Resources, Battle Mountain also purchased 9.5 percent of Zealand Mines’ interest in Kori Kollo, giving the company an 85 percent interest in the promising Bolivian mine.
As Battle Mountain upped its ante in Kori Kollo, important changes were taking place back in Houston, where new management took control of the company. Karl E. Elers, a former Pennzoil employee who joined Battle Mountain in 1987 as executive vice-president, was named chairman and chief executive officer in April 1990, shortly before the company announced its discovery in Bolivia. Elers assumed leadership over a company that increasingly was looking to expand abroad, as were many U.S.-based mining firms. Diminishing reserves, stiff environmental regulations, and escalating taxes conspired to make mining in the United States what one analyst characterized as a “nightmare.” For evidence of these domestic difficulties, Battle Mountain executives had to look no further than at their own operations. In Colorado, where the company had been attempting to develop a mine since 1988, progress had been delayed for two years as the company completed an environmental study and worked to resolve concerns of the local community. Meanwhile, as progress was stalled in Colorado, the company was able to gain considerable ground on foreign soil, acquiring a mine in Australia and moving forward with Kori Kollo. Although Battle Mountain’s operations in Bolivia, Chile, Papua New Guinea, and Australia were subject to taxes and environmental regulations, the measures imposed by foreign governments were neither as costly nor as time-consuming as they were in the United States.
Battle Mountain Gold Company is an international gold mining company. Using our skills and technologies, we will seek to enhance shareholder value through growth and industry leadership. We will succeed by exploring for and acquiring reserves, constructing and operating profitable mines, and providing challenging opportunities for our employees. We will apply our resources to the fundamental obligations that we have to our shareholders, employees, communities and the environment, while capitalizing upon opportunities worldwide.
Despite Battle Mountain’s emphasis on exploration and development overseas, the Fortitude mine continued to rank as the company’s largest mine through the early 1990s, but once Kori Kollo began producing the company looked to Bolivia for its most important supply of gold. During its first year the Kori Kollo mine produced in excess of 300,000 ounces of gold, a benchmark it would eclipse during its first three years of production.
With the production facilities at Kori Kollo up and running, Battle Mountain next moved to solidify its position in several of its other mining projects, which were typically owned and operated through a joint venture with another mining company. In Australia, where the company allied itself with Normandy Mining Ltd. in a development project named Vera-Nancy, Battle Mountain began developing an open pit mine in mid-1996. Earmarking $40 million to develop the mine, its infrastructure, and renovate processing facilities, Battle Mountain expected its Vera-Nancy mine eventually to produce 100,000 ounces of gold annually.
At roughly the same time the capital development program at Vera-Nancy was beginning, Battle Mountain began exercising its majority control in a joint venture project with a Sydney, Australia company named Niugini Mining Ltd. Battle Mountain owned 50.4 percent of Niugini, which controlled a 17 percent interest in the Lihir gold project in Papua New Guinea and interests in two other gold properties, the San Cristobal Mine in Chile and the Red Dome Mine in Australia. Battle Mountain officials were unhappy with the progress of Niugini, and their majority interest gave them the power to voice their concerns. The relationship between the two companies had been strained for several years, with no resolution to the situation in sight. In August 1996 Battle Mountain proposed acquiring the 49.6 percent of Niugini it did not already own, but Niugini’s directors refused the price put on the table by Battle Mountain. Battle Mountain had the last say in the matter, however, by replacing Niugini’s chairman and founding director with Dennis O’Connell, Battle Mountain’s chief financial officer. Other members of Niugini’s executive management were replaced with Battle Mountain executives in November 1996, providing the company with greater control over the management of its mines in Papua New Guinea, Australia, and Chile.
Prior to the flare-up between Battle Mountain and Niugini, Battle Mountain completed the most significant deal in its history. In July 1996 the company merged with Hemlo Gold Mines Inc., a Canadian gold mining firm based in Toronto. The union created the fifth largest pure-play gold producer in North America and the twelfth largest in the world, with operating mines in five countries, spread across three continents. Much of the far-ranging geographic scope of the new company was attributable to Battle Mountain’s international operations; Hemlo Gold’s strength was located in Canada, particularly its Golden Giant mine in Ontario. Thanks to the assets brought by Hemlo Gold into the new, larger Battle Mountain, two-thirds of the reserves owned by the merged companies was located in North America and another flagship mine was brought into Battle Mountain’s fold, the Golden Giant, which yielded more than 350,000 ounces of gold annually. With Kori Kollo and Golden Giant underpinning the “new” Battle Mountain of the late 1990s, the company prepared for the beginning of the 21st century, intent on building its reserves across the globe. “Our goals,” a Battle Mountain official explained, “include increasing reserves and production by 10 percent per year through exploration programs focused on deposits in North America and South America, the Western Pacific and West Africa, as well as through value-added acquisitions.”
Empressa Minera Inti Raymi, SA (88%); Battle Mountain Complex.
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—Jeffrey L. Covell