by Matthew Hart
Tye Burt, who bought Lundin’s gold mine, was a 53-year-old yachtsman, lawyer, and investment banker. He ran Kinross Gold Corp., a Toronto miner that vaulted into fifth place among world gold producers by paying $7.1 billion for what he believed to be the eye-bugging reserves of Lundin’s mine. Burt projected an air of unshakeable self-possession. He had a taste for the fiction of Ernest Hemingway. In Paris, he liked to drop in at the Café de Flore, a Hemingway haunt. Taking things up a notch, he had also run with the bulls three times at the festival of San Fermin in Pamplona, Spain, a rite immortalized by Hemingway in The Sun Also Rises.
“The bulls run three kilometers,” Burt told me, “and the side streets are closed to traffic. So the route becomes a sort of chute. The streets are packed, and they throw up the barricades and fire a cannon, and the bulls come out. You can’t outrun them—they are going full clip. So what you do is try to dodge them. If you really want to be cool, you swat a passing bull with a rolled up newspaper.”
Anyway, there you go: ran with bulls. The market punished Kinross stock, judging that Burt had overpaid for an upside that might not be there. “I hear they have 20 million ounces,” I put to Mark Bristow. “Sure,” he said, “and tomorrow—30 million.” Kinross fired Burt in August 2012, after the company took a $3.1 billion writedown on the Mauritanian property, two years after buying it.
IN CONGO, THE HIGH GOLD price spreads its benefits unevenly. At Kibali a 110-mile highway through the bush now links the province to the outside world. In come cheaper goods. Randgold hires local people, nurtures small businesses, has built a new town, church, school, clinic. Chinese motorcycles multiply like loaves and fishes, and gold bars will clunk from the plant for the investment payoff. A United Nations force helps pacify the region. Its soldiers come from countries paid to field them. In a sense they are security guards hired to protect property rights. If this arrangement seems cynical, consider the alternative.
A killing machine grinds its way through Congo, seeking gold. Tens of thousands of artisanal miners suffer a relentless toll. Soldiers, often unpaid by the government, demand cuts of gold production. Sometimes the soldiers use gangs of young men to terrorize the digs. A woman with a small store near a gold dig told researchers that it made no difference to the people whether it was a militia or government troops in charge. “They pillage, they rape, they kill, and they force us to give them money all the time. We have no peace, no matter who controls the region.”
To escape extortion by officials, miners sell their gold into the illegal trade, a much larger commerce than the legal one. As much as $400 million worth of contraband gold leaves Congo every year. In one six-month period in 2012, when official figures for the eastern Congo listed exports of twenty-three kilograms of gold, the true figure was as high as four metric tons.
The booming illegal trade made gold the main source of income for the killing posses of the eastern Congo. Because the United States’ Dodd-Frank Act makes companies account for the origin of minerals they buy that might come from the war zones of central Africa, militias find it harder to sell such minerals as tin or tungsten, but easy to sell gold. A human rights group calculated that $30,000 worth of gold would fit in a pocket and $700,000 in a briefcase. In eastern Congo, a war that has already killed 3 million people threatens to break out again, fueled by ethnic hatred and by gold.
One afternoon I sat with a modeler at Kibali and gazed at a vivid 3-D computer image of the main ore body. Beneath the undulating valley floor sprawled the gorgeous, tentacular, magenta-colored shape, with everything drawn in—the ventilation and mining shafts and the spiral tunnels for the trucks. A Randgold tech revolved the image on the screen to display it from every angle. It was hatched with thin lines that showed where the geologists had drilled, hole after hole, tracking every twist and turn of the ore.
Mining companies work in an environment swept by gold fever without catching the virus. They know that price is an unstable factor. They protect themselves by pricing their reserves well below the spot price. The Kibali mine will cost Randgold and its partner $2 billion, an investment that could be destroyed by a turn in the gold price. Randgold priced its reserves at $1,000 an ounce, meaning that they don’t consider rock to be ore unless it can be profitably mined at that price. Because price is so crucial, miners think about it all the time. I raised the subject with a South African gold executive, who asked me not to use his name because he was connected to the Kibali project and did not want his speculations on the record.
“With consumables, it’s easy to judge price,” he said. “If one pair of shoes costs $200 and another pair $300, you compare them and make your choice. If you want a bond, you compare interest rates. But if you decide to buy gold you pay the spot price. There is no reference, no other thing like it to compare it to.” He had studied at the Wharton School and had managed funds at a Swiss bank. “My whole life as a businessman I have struggled with questions of value,” he said. “It’s easy for me to engage in negotiations about value when there’s a reference point. But what’s the reference point with gold?”
The only reference point is other assets. Fear that other assets would not hold their value started gold’s phenomenal price rise in the first place. That rise accelerated with the banking crisis that began in 2008, but it was already under way. From 2004 to 2007, investors who worried about the sustainability of the boom in such asset prices as stocks and real estate, bought gold to hedge against a collapse. Gold investment in that period—around 600 tons a year—was twice what it had been in the four years that preceded it. The question of how far the gold price can rise becomes a question about how far down the economy can go. Or put the other way—the gold price will flame out when the economy stabilizes.
Except for a few practical uses, gold is a notional construct. It has no meaning but its price. Even the jewelry market hangs on that consideration—whether gold as a material is worth more than something else. Gold has moved far from its original place in the human imagination. It’s not clear that our distant ancestors even thought of it as valuable in the material sense. For much of prehistory, gold was placed in the ground as votive offerings. Our ancestors put gold in rivers from 2500 BC to 800 BC. Obviously they valued it, because it had some ceremonial role, but its value was not necessarily for trade. It was a value, scholars think, not for this world, but for the next. Gold was the last good-bye, a wish that would have to last forever. Maybe its immutability stood for the endurance of the human spirit in the face of death. Something of that association must have come down to us, and in the face of another apocalypse, people reached for gold.
In the financial crisis of the twenty-first century, doom was in the air. One theory about the super-rich saw in the growing concentration of wealth the ultimate destruction of the class acquiring it. As they drained more and more of the available resources into their own pockets, impoverishing the other participants in the economy, they were killing the economy itself, and hence themselves. In the steady procession of awful stories through the news, there was a sense that the perpetrators of the disaster had not changed their ways. Banks engaged in criminal activities, including money laundering, interest-rate rigging, and illegal home foreclosures. As a result of the limping economy, government revenues decreased and public finances deteriorated. In this environment, gold had its best bull run in history.
Every week a file of JPEGs lands in my inbox detailing the progress of the 45-million-ounce gold mine at Oyu Tolgoi in Mongolia. In the bamboo forest, thousands of diggers burrow through the soil. Now the search has moved to the deep ocean, where trillions of dollars worth of gold lies in sulfide deposits at volcanic vents. Nautilus Minerals of Toronto has a twenty-year lease on a target in the southwestern Pacific that it estimates to hold ten tons of gold. The Chinese are developing a submersible to explore deep-sea gold deposits and have acquired the rights to 3,860 square miles of seabed on a two-mile-deep volcanic rift in the Indian Ocean. There is no new use for gold driving this search, just the old one
: an inextinguishable conviction that it will always save the day.
Like other epidemics, gold fever sweeps the world with unequal effect. At Kibali, we drove one day through Durba town in a cavalcade of white SUVs, rolling clouds of thick red dust onto the people by the road. Our windows were rolled up tight against the heat and dust. From our air-conditioned spacecraft, we looked out at the alien souls. Many wore rags. Ninety percent of the children had malaria. Some villagers would escape this in a miraculous transformation, moving into the houses that Randgold was building and that we were on our way to see. There were ocher bungalows with glass windows and doors that locked, and water and electricity, laid out in a new town in a palm grove by the sparkling river. The position of a fence decided who would live there. The fence enclosed the gold mine property. Land that Randgold wanted to dig up was inside the fence. If your house was inside too, you moved to paradise.
Outside the town I saw a woman standing in a field, leaning on a rake. She wore a green turban and a dirty green dress, and from her face, every shred of hope had been extinguished. She turned her back as we went by.
ACKNOWLEDGMENTS
SPECIAL THANKS TO BARRY EICHENGREEN for reading the manuscript and making valuable observations. Thanks also to Michael Woodford of Columbia University for explaining the mechanism of the gold standard, and for reading parts of my account. Neither of these scholars is responsible for any blunders I may have made.
I owe a large debt to Kathy Sipos at Teranga Gold for arranging my trip across Senegal, and to Martin Pawlitschek for his time and patience. At the Teranga exploration camp I was lucky to be shown around by Donald Walker, Djibril Sow, and Thierno Mamadou Mouctar. Thanks to Mark English for a great visit to the Sabodala mine. I would be lower than a churl if I failed to thank Awa Ba for giving me a lift out of the pit in her 100-ton ore truck. Of course I owe most for the Senegal visit to Alan Hill, Teranga’s chief executive, not only for the visit, but also for his generosity in reading parts of the manuscript and correcting technical mistakes; for sharing with me his lively recollections of some of the most exciting passages in modern gold mining; and for giving me lobster for breakfast on a terrace overlooking Table Bay in Cape Town, allowing me a glimpse of what life is like for those who run gold mines.
Warm thanks to Kathy du Plessis at Randgold Resources for finding me room on a small and crowded plane, and to Rod Quick and Paul Harbridge for taking pains to explain the complexities of the ore body at Kibali.
Greg Hall opened many doors for me in China. His affection for the country, and for the distinguished gold people who are his friends, helped me understand their remarkable feat. Special thanks to Professor Zhu, to Feng Tao, and most of all to X. D. Jiang, that indefatigable practitioner, who wrung a profitable modern gold mine out of the most unpromising material.
Hayden Atkins at Macquarie Bank in London and James Steel at HSBC in New York helped me understand the bullion analyst’s perspective, and I often talked to Sterling Smith of Country Hedging. I am very grateful to my cousin, the investment banker Mark Cullen, for finding someone to verify the mechanics of how a hedge fund might manipulate the gold price, and for his generosity in introducing me to market insiders whose identity I have agreed to protect.
My introduction to Bad Brad Wood came from Sally Evans, a star reporter for the M&G Centre for Investigative Journalism in Johannesburg. Stefaans Brümmer, a veteran reporter and a managing partner of the Centre, put me in touch with Sally. The Centre is funded by, among others, the Open Society Foundation and the Mail & Guardian newspaper, which carries the Centre’s reports.
Alan Fine arranged my visit to Mponeng, for which many thanks, with special gratitude to Clive van der Westhuizen, the mine’s engineering manager, for diligently answering my innumerable follow-up questions.
I owe much to Dean Heitt at Newmont for showing me around the original mines of the Carlin Trend, and for reading my chapter on the discovery of invisible gold and offering suggestions. Anything amiss in the account is my fault entirely.
I thank Andy Lloyd for setting up my first interview with Peter Munk and arranging the visit to Goldstrike.
Thanks to my dear friend Alex Beam and to my old comrade-in-arms, Ian McLeod—thanks for the push.
Most important, for withstanding a withering fusillade of drafts, and for keeping up a steady, level-headed, and unnervingly accurate return fire, my deepest thanks are to my wife, Heather Abbott.
MATTHEW HART is a veteran writer and journalist and author of seven books, including the award-winning Diamond. His work has appeared in The Atlantic Monthly, Granta, The Times of London, and The Financial Post Magazine. He was a contributing editor of the New York trade magazine Rapaport Diamond Report and has appeared on 60 Minutes, CNN, and the National Geographic Channel. He lives in New York City.
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NOTES
CHAPTER 1: THE UNDERGROUND METROPOLIS
Picture Manhattan Island: Google Maps gives distance from 59th Street to 110th Street as 2.7 miles. AngloGold Ashanti’s reserves profile (“Ore and Reserves,” pdf at http://www.anglogold.com) for 2011, p. 35, confirms mining to 126 level (12,600 feet = 2.38 miles). Exploration drilling extends lower. In 2013 they are drilling from 126 level to hit the deeper Carbon Leader Reef at 4,200 meters (2.6 miles). The headframe completes vertical silhouette of mine to ±2.7 miles. All other physical mine data from reporting.
Their target was a thirty-inch-wide strip: See http://www.mining-technology.com/projects/mponeng: average channel width 78cm, or 30.7 inches. For gold prices see http://www.kitco.com/gold.londonfix.html. For value of deposit: annual production of 600,000 ounces reported at http://www.infomine.com/minesite/minesite.asp?site=mponeng, multiplied by that day’s London morning fix of $1,581.
The world is awash: 2011 survey of bullion market: Jack Farchy, “Sizing Up the Gold Market,” Financial Times, September 9, 2011, http://www.ft.com/intl/cms/s/0/eb342ad4-daba-11e0-a58b-00144feabdc0.html#axzz2QoQC31wu.
As the gold price soared: “Soros Doubles Down on Gold,” New York Times, February 2, 2010, http://dealbook.nytimes.com/2010/02/17/soros-doubles-down-on-gold/; Azam Ahmed and Julie Creswell, “Bet on Gold Nets Paulson $5 Billion,” New York Times, January 29, 2011, http://www.nytimes.com/2011/01/29/business/29paulson.html.
Fear drove the price: Allan H. Meltzer, “Gold Fever Is a Symptom,” New York Times, August 2, 2011, http://www.nytimes.com/roomfordebate/2011/08/02/should-central-banks-buy-gold/gold-fever-is-a-symptom-of-inflation-fears.
Sometimes the quakes: See for example Dennis Ndaba, “Can South Africa Stop the Mine Fatalities?” Mining Weekly, February 1, 2008, http://www.miningweekly.com/article/can-south-africa-stop-the-mine-fatalities-2008-02-01.
Some of the rockbursts had been so powerful: John Oxley, Down Where No Lion Walked (Johannesburg: Southern Book Publishers, 1989), 159.
Sometimes it winds men to their death: Robert Block, “Locomotive Crushes 105 Gold Miners,” Independent, May 12, 1995, http://www.independent.co.uk/news/world/locomotive-crushes-105-gold-miners-1619145.html. Liezl Hil
l, “Nine Killed in Accident at Gold Fields’ South Deep mine,” Mining Weekly, May 1, 2008, http://www.miningweekly.com/article/nine-killed-in-accident-at-gold-fields039-south-deep-mine-2008-05-01.
Once our cage was full: All data on winders from Clive van der Westhuizen, engineering manager, Mponeng mine.
Swarming the gold mines: My account of ghost miners is based on interviews with police and mine officials, and on-site visits, but see also “100s of Miners Could Be Buried,” News24, June 4, 2009, http://www.news24.com/SouthAfrica/100s-of-miners-could-be-buried-20090604; Monako Dibetle, “Dying for Gold,” Mail & Guardian, June 15, 2009, http://mg.co.za/article/2009-06-15-dying-for-gold; “Mystery of Aurora Corpses,” Mail & Guardian, August 13, 2010, http://mg.co.za/article/2010-08-13-mystery-of-aurora-corpses.
Gold once had a sacred aura: For Charlemagne’s reliquary, see http://www.sacred-destinations.com/germany/aachen-cathedral. For St. Edward’s Crown, see http://www.royalcollection.org.uk/collection/31700/st-edwards-crown. For the Seville altarpiece, see Francisco Gil Delgado, Sevilla Cathedral (Barcelona: Editorial Escudo de Oro, 2003), 28–33.
In August 2011 the “BlackBerry riots”: “The BlackBerry riots,” Economist, August 13, 2011, http://www.economist.com/node/21525976; Josh Halliday, “London Riots: How BlackBerry Messenger Has Been Used to Plan Two Nights of Looting,” Guardian, August 8, 2011, http://www.guardian.co.uk/media/2011/aug/08/london-riots-facebook-twitter-blackberry; Richard Partington and Jennifer Bollen, “Square Mile on Alert over London Riots,” Financial News, August 9, 2011, http://www.efinancialnews.com/story/2011-08-09/bank-branches-left-closed-damaged-by-london-riots.
His first client: For Mandla Gcaba as taxi owner and nephew of Jacob Zuma, see Agiza Hlongwane, “Zuma’s Nephew in R300m Tender Dispute,” IOL News, December 9, 2012, http://www.iol.co.za/news/south-africa/kwazulu-natal/zuma-s-nephew-in-r300m-tender-dispute-1.1437844#.UXA21b_Xf0A.
