Homestake Mining Company History
Walnut Creek, California 94596-3569
Telephone: (925) 817-1300
Fax: (415) 397-5038
Sales: $691.0 million (1999)
Stock Exchanges: New York Australia Toronto Basel Geneva Zurich
Ticker Symbol: HM
NAIC: 212221 Gold Ore Mining; 212222 Silver Ore Mining
Homestake has maintained a major role in the gold mining industry for over 120 years. Since 1990, the Company has produced 17 million gold and equivalent ounces. At the end of 1999, Homestake's share of proven and probable reserves amounted to 18.8 million ounces of gold and 110 million ounces of silver. Homestake operates both underground and open pit mines and uses a variety of mineral processing methods to extract gold, including conventional milling, heap leaching and roasting. The Company has received numerous industry awards for its superior record in the environmental, health and safety areas. Key Dates:
- Moses Manuel stakes claim at Homestake gold mine in Lead, South Dakota.
- Consortium of San Francisco investors, led by George Hearst, purchases Homestake.
- U.S. Treasury Department fixes price of gold at $35/ounce.
- U.S. Government orders mining companies to cease production of gold.
- Gold mines resume operations.
- Homestake begins uranium explorations.
- Homestake enters joint venture with AMAX Gold.
- McLaughlin gold mine is discovered.
- Homestake acquires Felmont Oil Corporation.
- Homestake sells off oil and natural gas interests.
- Homestake acquires International Corona Corporation.
- Homestake Mining announces intention to shut down original Homestake mining operations.
Owner and operator of the oldest gold mine in the United States, Homestake Mining Company is an international gold mining company with substantial gold interests in Canada and Australia, as well as smaller interests in Chile. From the company's Homestake mine, which began producing gold in 1876, Homestake Mining has built a mining empire that has vaulted it past all competitors and ranked it as the premier gold producer in U.S. history.
The Race for Gold in the 1870s
In 1874, a U.S. Cavalry scouting party led by Lt. Col. George A. Custer inched its way through the deep valleys and steep ridges carved into the Black Hills of Dakota Territory, 15 years before the region became part of the country's 40th state, South Dakota. The expedition begun that year set in motion a cavalcade of events that in a few years would lead to Custer's Last Stand at Little Bighorn, the massacre of Sioux at Wounded Knee, the financial ascension of the powerful and wealthy Hearst family, and the founding of Homestake Mining Company, the country's preeminent gold producer. These were the effects of one definitive moment when Custer's troops spotted traces of gold in the mountainous and sparsely populated Black Hills, an ill-fated moment for Custer and the Sioux and a propitious one for the Hearst family and all those enriched by Homestake Mining's formation.
For a populace already tantalized by the riches gold could bring, no formal declaration was required, and word of the new discovery quickly spread throughout the western territories. Within months, settlers were pouring into the area, scouring the countryside for further confirmation of gold's existence in the region. With their arrival, small yet burgeoning communities were established, such as Deadwood, the local hotbed of entertainment for miners and prospectors, where Wild Bill Hickok and Calamity Jane met their end. As more settlers moved into the region, tensions between the Sioux and the region's new denizens mounted, touching off a war that led to Custer's death two years after his scouting party had discovered gold. Hostilities between the Sioux and U.S. forces did not end until the battle at Wounded Knee in 1890, by which time a more affirmative manifestation of the scouting party's discovery already had developed into a flourishing enterprise.
One fortune-seeker drawn by the news of gold in the Black Hills was a prospector named Moses Manuel, who in 1876 staked a claim that would become known as Homestake. Manuel's ownership of Homestake was fleeting, however, ending the following year when the mine was sold to a consortium of San Francisco investors led by George Hearst, father of publishing magnate William Randolph Hearst. Hearst and his backers paid Manuel $70,000 for the Homestake mine, and in return they received the largest gold mine in the United States: literally the mother lode of the Western Hemisphere. With the profits gleaned from his father's mine in southwest South Dakota, William Randolph Hearst would begin his meteoric rise, purchasing the San Francisco Examiner in 1887 and going on to build the world's largest publishing empire.
These were the effects of the frenzy for gold in South Dakota; lives were lost and fortunes were made, making for a quintessential chapter of life in the American frontier. Homestake Mining Company was incorporated in 1877. At the time, George Hearst and his syndicate likely had little idea of the magnitude of their purchase. The Homestake mine eventually would supply the United States with the bulk of its gold for more than 100 years and would surpass competitors in becoming a prodigious force in the global gold industry.
Record Profits on the Eve of World War II
The mining company enjoyed the lucrative years of gold mining's heyday during the first half of the 20th century. The company prospered during this period, sending its miners deeper and deeper into the Homestake mine, where they located sizable deposits of gold enveloped in tons of ore. In 1935, the company recovered enough gold to register $11.39 million in net income, a record that would stand for nearly 40 years. One year before Homestake mine established its net income benchmark, the price of gold, set by the U.S. Treasury Department at a fixed amount per ounce, was raised from $20.67 an ounce to $35 an ounce, welcome news for gold producers like Homestake Mining. The price of gold, however, would remain at that price for roughly the next 40 years, fixed and unchanged as gold production costs rose.
As the years passed and production costs increased, the gap separating the cost to produce gold and the fixed price established by the government narrowed, coming inexorably together and threatening to make the country's largest gold mine a profitless hole in the ground. Homestake Mining's inability to increase or at least maintain its profit margin was a growing concern as the company entered the 1940s and the United States entered World War II.
America's entrance into World War II brought gold production to a halt, as miners and other workers were transferred to industries vital to the country's prosecution of the war. The Homestake mine remained closed for three years, reopening again in 1945, which, as it turned out, benefited the company, as much of its competition dissolved during this time. For gold mining companies with smaller producing mines than Homestake Mining, the years before the war had been difficult enough. When the government called a halt to gold production, many decided against reopening after the respite, leaving Homestake Mining in a more favorable market position than before the war. Competition, however, was not the company's most worrisome problem; the upward march of gold production costs continued to hamper profits. To reduce production costs, the company installed automated hoisting equipment, introduced television monitoring and short-wave communication equipment, and sought to double each miner's productivity, but these were temporary solutions to a perpetual problem. By 1951, one ounce of gold cost Homestake Mining $22.18 to produce, a total that was creeping dangerously close to the fixed $35 per ounce price paid by the federal government.
The Search for New Resources in the 1950s and 1960s
In response, Homestake began a diversification program in 1953, purchasing over the next four years uranium properties in Utah, Wyoming, and New Mexico. By the mid-1960s, the mining of uranium was contributing more than half of the company's $4.9 million in net income, quickly supplanting gold as the company's greatest money earner. The Homestake mine, however, still represented the largest gold-producing property in the Western Hemisphere, making Homestake Mining the largest producer of gold by far in the United States. Although the Homestake mine had been expanded, reaching depths of 6,800 feet by the mid-1960s, its profitability had plunged as well, falling in the face of rising production costs and an industrywide downturn. In the quarter century leading up to the mid-1960s, the number of gold mines in operation in the United States had plummeted precipitously from 9,000 to 600, while the cost of producing an ounce of gold had steadily risen from less than $20 to nearly $33. Operating income from the Homestake mine fell from $12.1 million in 1941 to $2 million in 1963, and dividends fell during the period from $4.50 a share to $1.60 a share.
To exacerbate matters, the amount of gold produced in 1963 represented the lowest peacetime level since 1884, further convincing Homestake Mining's management that the only viable solution lay in diversification away from gold production. In 1962, Homestake Mining entered into a joint venture with AMAX Gold to develop lead and zinc properties in southeast Missouri, then two years later entered into another joint venture to develop potash in Saskatchewan, Canada, which began production in 1968. The concerted movement toward diversification during the 1960s also brought Homestake Mining into Australia to produce and ship iron ore from Koolanooka, in western Australia, through its Homestake Iron Ore Company of Australia Ltd. subsidiary in 1966, and led to the formation of another subsidiary, Compania Madrigal, created to develop copper, lead, and zinc deposits in Peru in 1967. Also during this time, production began at Homestake's Buick lead and zinc mine in Missouri and silver production began at its Bulldog mine in Creede, Colorado, bolstering Homestake Mining's market presence in nongold mining businesses.
After 20 years of diversification into uranium, lead, zinc, and copper, Homestake Mining had become a much different company, a transformation readily borne out in its bottom line. By the early 1970s, uranium, lead, zinc, and silver production accounted for 75 percent of the company's profits, while the production of gold, formerly Homestake Mining's mainstay business, was increasingly becoming a break-even enterprise. The gold industry, however, was about to experience significant changes that would alter the focus of Homestake Mining's business, redirecting it once again back to gold. During the 1970s, the price of gold was freed from its fixed price of $35 an ounce, at last removing the formidable barrier that forced Homestake Mining to diversify its business. In response, gold production was reinvigorated throughout the country and gold producers, such as Newmont Mining Corporation and Kennecott Corporation, began developing large gold properties, forcing Homestake Mining to either wait for the competition to catch up or supplement its existing gold properties.
The company's management chose the latter, deciding, as Homestake Mining's president and chief executive officer declared in a speech before the New York Society of Security Analysts, 'to reestablish and confirm [the company's] reputation as the United States' preeminent gold miner.' Beginning in 1978, Homestake Mining launched an aggressive exploration program to find new gold deposits, which resulted in the discovery of the McLaughlin gold mine in California in 1980, a symbolic discovery made in the first year of a decade that would see Homestake Mining move back into gold and away from uranium, lead, zinc, and silver.
A New Golden Age: The 1980s
The McLaughlin mine took five years and $280 million to develop, but, when it finally did begin producing gold in 1985, it added significantly to Homestake Mining's annual total of gold production, which tripled during the decade. The company's gold reserves tripled as well during the 1980s. Nevertheless, uranium, lead, zinc, and a relatively new business area for the company--oil and natural gas--continued to contribute significantly to the company's annual revenue total. During the mid-1980s, these nongold businesses generated nearly half of the company's revenues, but by the end of the decade all would be divested, as Homestake Mining returned to its roots and became almost exclusively a gold producer and developer.
Homestake Mining had entered the oil business in 1980 through a joint venture with Hrubitz Oil Company. It then sought to strengthen and accelerate its position in the energy business with the 1984 acquisition of Felmont Oil Corporation. The company sold its interests in oil and natural gas in 1989, however, as it quickly began exiting its nongold related businesses. Uranium mining was terminated in 1990, the same year Homestake Mining's lead and zinc properties, organized as part of The Doe Run Company in 1986, were sold to Fluor Corporation, creating a much more focused corporate organization.
In 1991, Homestake Mining recorded its first full-year loss in nearly 50 years, losing $262 million in large part because of mining property write-downs, operational problems, and low gold prices. The following year, however, the company made the largest acquisition in its history when it purchased International Corona Corporation. With the acquisition of International Corona, Homestake Mining gained low-cost gold production properties, five million ounces of reserves, and gold development property in British Columbia. The write-down charges stemming from the acquisition totaled $176 million, $106 million of which was recorded in 1991, which accounted for a significant portion of the company's loss for the year.
Once acquired, International Corona was renamed Homestake Canada Inc., and then Homestake Mining initiated a corporatewide restructuring program to ease the absorption of the unit into Homestake Mining's organization. Nearly 200 jobs were eliminated, administrative and exploration offices were closed, and upper management positions were changed during the restructuring process, as the company prepared for the mid-1990s and beyond.
With its enormous wealth of gold production properties, Homestake Mining entered the mid-1990s still holding tight to its venerable position as America's leading gold producer. Although the company's gold production costs were high compared with the rest of the industry, the addition of International Corona's low-cost gold production properties raised hopes that Homestake Mining would continue to outdistance its competition as it headed toward its third century of business, still producing gold from its coveted Homestake mine.
International Expansion in the 1990s
In the mid-1990s Homestake began aggressively acquiring interests in a number of mining operations worldwide, many of which were in geographical regions that were previously unfamiliar to the company. In June 1995 it staked its first claim in Europe, when it reached an agreement with the Irish mining company Navan Resources to acquire a 50 percent share of Navan's holdings in the Chelopech mine in Bulgaria. In the same month Homestake bought a five percent stake in Zoloto Mining Ltd. of Russia, a deal that included a second option to obtain an additional 62 percent share. The company became extremely busy again in November 1996, when it entered into a joint project with Franc-Or Resources of France to begin explorations in French Guiana; that same month, Homestake purchased the Whiskey Gulch and Marshall Dome mines in Alaska. During this same period Homestake also made two key discoveries in Chile--the Manto Agua de la Falda and Jeronimo mines--that led to the creation of Agua de la Falda S.A., a joint venture with the state-owned Corporacion Nacional del Cobre Chile (Codelco), in 1996.
Homestake's most ambitious move came in December 1996, when it announced its intention to acquire the Santa Fe Gold Corporation. The deal, worth $2.3 billion, would give Homestake the largest gold reserves in North America and place it second only to Barrick Gold Corporation of Canada in total North American production. What was intended as a friendly takeover quickly became a bidding war, however, when Newmont Mining Corporation submitted its own offer for Santa Fe. Although the move was not exactly unexpected, since Newmont had made an offer several months earlier, it did initiate a lengthy public relations battle between the two rivals, each determined to convince Santa Fe it was giving it the best deal. Newmont ultimately won out, finally signing a merger agreement with Santa Fe in March 1997 for $2.5 billion. The deal made Newmont the largest gold producer on the continent and second in the world to Anglo American of South Africa.
Undaunted, Homestake continued to expand as it approached the year 2000, acquiring the Plutonic, Lawlers, and Darlot mines in Western Australia in April 1998 and the Argentina Gold Corp. in April 1999. Homestake's Australian gold production more than tripled between 1993 and 1998, from 300,000 ounces to more than 900,000 ounces. By the year 2000 Homestake's Australian operations accounted for 39 percent of the company's total gold production, compared with 30 percent for its U.S. mines and 30 percent for its Canadian mines. Altogether, the company produced more than 2.4 million ounces in gold and equivalent amounts of silver in 2000. At the same time, production costs dropped steadily in the late 1990s, reaching a 20-year low of $192 per equivalent ounce in 1999.
Unfortunately, the late 1990s also saw a steady decline in the price of gold, with a drop of $109 per ounce in a four-year period. By July 1999 gold was selling for $253/ounce, its lowest price in 20 years. Homestake was forced to report a loss of $218.3 million for 1998, as total sales dropped almost $200,000 from the previous year. In an attempt to simplify its operations, so that it could refocus on its most profitable mines, Homestake began selling off many of the foreign interests it had acquired only a few years before. In July 1998 the company terminated its agreement with Franc-Or; in April 2000, it sold its Bulgarian interests to Gold Mines of Sardinia in exchange for stock. A particularly sad result of the downsizing came in September 2000, when the company, citing a significant reduction in ore quality, announced its intention to shut down the original Homestake Mine in Lead, South Dakota, by January 2002.
Principal Subsidiaries: Homestake Canada Inc.; Homestake Gold of Australia Limited; Minera Homestake Chile, S.A.; Homestake de Argentina S.A.
Principal Operating Units: Eskay Creek Mine (Canada); Williams and David Bell Mines (Canada; 50%); Ruby Hill Mine; Round Mountain Mine (50%); Homestake Mine; McLaughlin Mine; Marigold Mine (33.3%); Kalgoorlie Consolidated Gold Mines (KCGM) Pty. Ltd. (Australia; 50%); Plutonic Gold Mine (Australia); Darlot Gold Mine (Australia); Lawlers Gold Mine (Australia); Jeronimo (Chile; 51%); Agua de la Falda Mine (Chile; 51%); Veladero (Argentina; 60%).
Principal Competitors: Anglo American plc (U.K.); Barrick Gold Corporation (Canada); Newmont Mining Corporation.
- Anderson, Scott, 'Homestake Buys Big Rival,' Toronto Star, December 23, 1997.
- 'Another Coin?,' Forbes, March 1, 1965, p. 42.
- Blackburn, Mark, 'For Homestake, It's Okay to Be Dull,' New York Times, January 27, 1980, p. F1.
- 'The Boom That Isn't,' Forbes, June 15, 1972, p. 48.
- Cook, James, 'Nowhere to Go But Up,' Forbes, November 12, 1990, p. 39.
- 'Gold Digs,' Newsweek, May 25, 1964, p. 85.
- 'Gold from Lead,' Time, March 11, 1966, p. 88.
- 'Gold Without Glitter,' Forbes, December 1, 1962, p. 30.
- Hall, William, 'Swiss Set to Abandon Gold Standard,' Financial Times (London), April 16, 1999.
- 'Homestake Mining Co.,' Wall Street Transcript, August 5, 1985, p. 78,807.
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- 'Homestake Winds Up with Red Ink in 1991,' American Metal Market, February 24, 1992, p. 15.
- Levine, Jonathan, 'What's Pickens Really Panning for in Homestake?,' Business Week, March 14, 1988, p. 42.
- Loehwing, David A., 'New Gold Rush,' Barron's, June 18, 1973, p. 3.
- 'Luck vs. Judgment,' Forbes, July 1, 1967, p. 49.
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- Sherman, Joseph V., 'New Sourdoughs,' Barron's, June 21, 1965, p. 3.
- Sinton, Peter, 'Gold Deal May Create Mining Giant,' San Francisco Chronicle, December 10, 1996.
- Smith, Kerri S., 'Letter Blasts Newmont Gold Bid,' Denver Post, February 11, 1997.
- Viani, Laura, 'Restructuring of Homestake to Save $25M,' American Metal Market, August 24, 1992, p. 8.
Source: International Directory of Company Histories, Vol. 38. St. James Press, 2001.