Newmont Mining Corporation

newmont and Yanacocha

Newmont Mining Corporation is the world’s second largest producer of gold and is also a major producer of silver and copper. It is an American company, founded in 1916. Newmont produces more than five million ounces of gold every year and, in 2010 according to its own estimates, it had reserves of over 2,500,000 kilograms. It employs more than 30,000 people and has mining operations in Ghana, Indonesia, Australia, New Zealand and Peru.

In 1993, the Peruvian government granted a concession to a consortium of Newmont and two other companies to mine in a 1572 square kilometer area north of the city of Cajamarca in northern Peru. Newmont was the largest shareholder in the consortium. The first project in the Cajamarca concession was the Yanacocha mine. It began operation in 1997. (81) By 2010, the mine and had produced about $7 billion worth of gold, and established itself as the most productive gold mine in Latin America. In 2010 alone, Yanacocha produced 37,000 kilograms of gold, worth about $2 billion. (8)

the economic and political context

In 1993, when Newmont reached its agreement with the Peruvian government, Peru had been for three years under the rule of President Alberto Fujimori. During his first year in power Fujimori had introduced many neo-liberal reforms. These changes included easing restrictions on foreign investment and the privatization of government-owned mining companies. During his second year in power, frustrated by the way opposition politicians were slowing down the implementation of his reforms, Fujimori shut down the Congress and purged the judiciary.(65) Later on, he had a new Congress elected and in 1993 a new Constitution was written. One result of these all these changes was the creation of a situation in which it was much easier for foreign-owned mining companies to set up operations in the country. According to one commentator, from that time on, the role of the Peruvian government was “primarily that of promoter or regulator of private initiatives receiving the primary benefit of natural resources investments through taxes royalties and rights over concesssions.”(79) The extent of the Peruvian government’s welcome to foreign mining companies is shown by what the 1993 Constitution says about concessions: “the state has the right to grant subsoil concessions as an irrevocable right for an indefinite time.”(79)

Newmont was one of the first to take advantage of the opportunity but many others followed. Since 1993, because of the political environment and the spectacular increase in mineral prices, there has been a steady flow of foreign mining companies into Peru, and mining has become more and more a mainstay of the country’s economy. By 2012 mining made up 61% of Peru’s export earnings and, as one report put it, was “the driving force behind ‘Peruvian miracle’ which has produced economic growth rates comparable to those of China and India.”(8)

the unexpected wealth of Yanacocha

Yanacocha did not actually begin to produce gold until 1997, four years after the concession was granted. It took that long to set up the infrastructure that was required before digging could actually begin. Even though no ore was being removed however, the value of the mine increased rapidly during that time. Testing and analysis of the soil continued, and as a result of this work, by 1994, it was known that the original estimate of reserves of 37 million kilograms had been too low. In fact, there were 85 million kilograms of gold hidden in the ground at the Yanacocha site. In a 2010 article in the New York Times, Len Harris, manager of Yanacocha in the early days was quoted as saying, “Everywhere we drilled, and looked there was gold.” (24)

BRGM’s decision to sell its shares

One of the partners in the original consortium formed in 1993 was a company owned by the French government, The Office of Geological Research and Mining (BRGM). Around the same time the true value of the gold deposits at Yanacocha was discovered, the leader of the Shining Path guerillas was captured and this meant there was less political tension in the Cajamarca area. These two developments apparently led BRGM to the conclusion that the time had come to profitably sell their share in Yanacocha. They soon found a willing buyer, an Australian-based company, Normandy Poseidon. However, Newmont didn’t like the idea of of another multinational mining company involved in Yanacocha. So, in order to prevent the sale, they launched a lawsuit in the Peruvian courts. They argued that, properly interpreted, the agreement between the consortium and the government gave Newmont the right to block any sales by the other partners. Newmont won the case, but BRGM appealed. Newmont won again and everyone thought the dispute had come to an end.

Larry Kurlander and Patrick Maugein

But, in 1997, SRGM and Normandy persuaded the Supreme Court of Peru to reopen the case. Once again Newmont was worried that they might be forced to accept an unwanted partner at Yanacocha. They sent Larry Kurlander, a high-level executive with a background in government, to Peru. There, Newmont lawyers told him they suspected the French government had bribed Peruvian judges to get them to agree to hear the case again. (As Larry Kurlander later pointed out, although the French government denied all these accusations, there is no French law which prohibits French companies from bribing officers in foreign countries; he also pointed out that US companies are subject to such a law, The Foreign Corrupt Practices Act.)

When Normandy realized how determined Newmont was to block the sale, they hired Patrick Maugein a high-level French lawyer to defend their interests. He wrote to Newmont and to their Peruvian partner, Buenaventura, warning them that the case had become a matter of state and that SRGM “had every intention of fighting it to the bitter end.” (22) Patrick Maugein also wrote to the French President, Jacques Chirac asking for his help and, soon afterward, Jacques Chirac wrote to Alberto Fujimori asking him to intervene on behalf of SRGM and Normandy. Around the same time, Larry Kurlander went to Washington to get help from the American government and at the end of October 1997, Stuart Eizenstat, the US “under secretary of state for foreign affairs” wrote to the prime minister of Peru.

the supreme court decides against Newmont

In January, 1998, the Peruvian Supreme Court announced a “preliminary decision”: The judges had voted 3 to 2 in favor of allowing SRGM to sell out to Normandy. To make their victory final, SRGM needed to secure a favorable vote from at least one more judge. So the Peruvian government decided to assign two more judges to the case.

Baruch Ivcher

Soon after, Larry Kurlander and the head of Buenaventura, Newmont’s Peruvian partner, went to see Alberto Fujimori. Fujimori advised them to speak to his “counselor” and the head of Peru’s secret police, Vladimiro Montesinos. By the time of his interview with Vladimiro Montesinos, Larry Kurlander had discovered that even if he could not legally offer bribes to Peruvian, officials, he did have a weapon he could use. He knew that Vladimiro Montesinos’ persecution of the Israel-born Peruvian businessman, Baruch Ivcher had been getting a good deal of attention in the American media — and that this attention had been damaging to Peru’s reputation.

Baruch Ivcher, who had been a Peruvian citizen since 1984, was a successful businessman. He was the owner of the television station, Channel 2, which broadcast an extremely popular investigative program called Contrapunto. Among the stories dealt with by Contrapunto was a report on the income tax statements of Vladimiro Montesinos which together with other pieces of information raised suspicions that Montesinos was making money from drug-trafficking. Police officers working for Vladimiro Montesinos visited Baruch Ivcher in his office; they offered to give Canal 2 exclusive footage of the arrest of an important drug trafficker if he would promise that Channel 2 would not broadcast the trafficker’s allegations that he had been paying protection money to the Peruvian army and Vladimiro Montesinos. Baruch Ivcher refused the offer and Contrapunto reported on the officers’ visit. In response, the government denied that police had visited Baruch Ivcher, but Channel 2 produced security log entries which showed that the visit had indeed occurred.

To defend itself against charges that it was repressing the truth, the government charged the two officers with having lied about the visit. And they ordered Baruch Ivcher to appear as a witness during the officers’ trial. Mr Ivcher had heard stories about how the government was planning to use the trial as a pretext for seizing and prosecuting him. He had also been getting anonymous telephone calls warning him about the consequences of continuing to broadcast stories that were embarrassing to the government. In light of all this he felt it would be unwise for him to stay in Peru, so on May 13, 1997, he left.

Even after he had left Peru, continued to direct Channel 2 and to broadcast information critical of the government. In July, Channel 2 announced that it was planning a broadcast about illegal government tapping of the phones of 200 opposition politicians and journalists. Baruch Ivcher, still outside the country received a final anonymous phone call warning him not let the story run. The same day Peruvian newspapers reported a warning from the Supreme Council of Military Justice army saying that Baruch Ivcher could lose his Peruvian citizenship “for having endangered to national security by allowing the broadcast of reports which embarrassed the armed forces.” The program ran anyway, and twenty minutes after it had ended Baruch Ivcher was officially deprived of his citizenship by the Immigration and Naturalization Department. Soon after, he was also deprived of his ownership of Channel 2 and his shares were given to two of his partners. Not surprisingly, after all this had happened Channel 2’s reporting become much milder and all the top investigative journalists who had been working there resigned. On November 10, 2000 after Alberto Fujimori had announced that there would be new elections but before he fled to Japan, the government restored Baruch Ivcher’s citizenship.(84,89)

the conversation between Larry Kurlander and Vladimiro Montecinos

The international controversy over Peru’s treatment of Baruch Ivcher had an impact in the US because Baruch Ivcher had been born in Israel and the American Jewish community was inclined to interpret the story as an example of high-level anti-semitism. Acting on President Fujimori’s advice, Larry Kurlander had a private visit with Vladimiro Montesinos on February 25, 1998. His purpose was to persuade Vladimiro Montesinos to help Newmont in its battle with SRGM. His plan was to offer, in return for this help, to repair the damage the Baruch Ivcher story was doing to Peru’s reputation in the US. He promised he would lobby his follow Jews in the American Congress and reassure them that the Peruvian government’s treatment of Baruch Ivcher was not motivated by anti-semitism. He did not know, of course, that Vladimiro Montesinos had the habit of secretly filming his conversations with visitors. (24)

Vladimiro Montesinos spoke Spanish and Larry Kurlander spoke English. Grace Riggs, an American lawyer and a former lover of Montesinos acted as an interpeter. Vladimiro Montesinos begins the conversation by saying he is aware of the problems Newmont is having in its fight with Normandy and is happy to help out. Larry Kurlander mentions — apparently to make it clear that he and Vladimiro Montesinos live inn the same “world” — that he has asked two of his friends in the CIA to help him succeed in his assignment. (He presumably knew that Vladimiro Montesinos had direct control over the $10 million a year the CIA had been giving the Peruvian secret police, to finance its “war” against drug traffickers.) (91)

Next, Larry Kurlander brought up the Baruch Ivcher case, and Vladimiro Montesinos reassures him that the actions taken against Baruch Ivcher were not based on anti-Semitism. At that point, Larry Kurlander makes his offer to help out with lobbying. And Vladimiro Montesinios promises to “help” with the voting in the Supreme Court. He adds that he knows about the “tricky practices of the French government.” Then, in English, he makes a mentions The French Connection. According to the New York Times report this “gets the men laughing. [And] soon spy chief and executive are pledging friendship for life.” ThenVladimiro Montesinos says to Larry Kurlander, “Amor se paga con amor” — love is repaid with love.(24)

In the next weeks, nothing much happened although, as the New York Times reports there were two phone calls to Vladimiro Montesinos from Peter Romero who was the American secretary of state for Western Hemisphere affairs and who later explained that his purpose in making the calls was to “neutralize” the efforts the French president and other high level French officials to influence the Peruvian courts. And there was also a meeting between Vladimiro Montesinos and Don Arabian which like the Kurlander-Montesinos conversation was recorded on a tape that was later made public. In this conversation Vladimiro Montesinos refers to the “extortion, blackmail, and other gangster methods ” of the French and apparently, in remarking that “I’m not working with the telephones but I will if necessary” implies that his is willing to use wiretapping to undermine the French efforts. According to the Times report both men laughed at this point.(24)

Three weeks after the conversation between Vladimiro Montesinos and Don Arabian, the Peruvian Supreme Court announced that its latest review of the case had ended in a deadlock, with three judges voting in favor of Newmont and three voting in favor of Normandy. (For some reason, despite the government’s announcement after the previous 3-2 decision in favor of Normandy that two new judges would be appointed to the Supreme Court, only one had in fact been appointed; however, after the 3-3 deadlock had been announced, another judge was quickly appointed.) The new judge was Jaime Beltrán Quiroga. The day after he was appointed, he was called to the office of Vladimiro Montesinos and this visit was also recorded on videotape. While the judge sits on a couch Vladimiro Montesinos casually tells him that, since he is a lawyer himself, he understands that judges should not normally get involved in “events.” However, he continues, “in these cases, one has to intervene directly.” Neither Vladimiro Montesinos or Jaime Beltrán mentions Newmont or Normandy or the names of any particular people; and no direct pressure is put on the judge, even in abstract terms. Vladimiro Montesinos does point out though that the decision in the case will have international repercussions and that it is important not to offend the Americans, especially when they will soon be participating in negotiations between Peru and Ecuador about the border between the two countries. After that the two men reminisce for a while in a friendly way. Then Vladimiro Montesinos asks Judge Beltrán about his professional ambition. As the meeting draws to a close, Judge Beltrán tells Vladimiro Montesinos, “You have a friend here,” and Vladimiro Montesinos replies by saying, “My dear Jaime, a pleasure to see you brother,” and by reassuring the judge that he will soon be transferred to Peru’s Constitutional Court.(24)

Two weeks after meeting with Vladimiro Montesinos, Judge Beltrán voted in favor or Newmont and the case was finally settled. BRGM’s share was sold to Newmont and their Peruvian partner, Buenaventura. They paid $110 million, the value that had been put on the shares at the time of the original agreement in 1993. This was only one-fifth of their market value in 1998 when the money finally changed hands. (24)