Gold (27 page)

They drained the lake and drilled the bed. They hit gold, and kept on hitting it. Their press releases sang out on the business wires,
confirming the promise of the Kilo-Moto greenstone belt. The gold price rose. Moto's value rose. One industry website called it “the hottest gold stock in the world.” Now it was time for the next part of the drama. Moto had gobbled up the goldfield, and now they would get gobbled up themselves. The fight for Moto pitted two gold-rich tycoons against each other in a battle that the victor quarterbacked from the saddle of a speeding motorcycle.

“W
E BEGAN TO WATCH
M
OTO
in 2006,” said Rod Quick, the chief of exploration for Randgold Resources, a Channel Islands–based gold miner. “I tracked their data hole by hole. I plotted it. I visited the site.”

Both companies understood this relationship perfectly. A junior company exists to attract such predators. The prey hopes—intends!—to be caught and swallowed whole. It's important for the hunter to remember this. “Each time we got a drill result from them I'd put it into the mix,” said Quick. “Obviously, juniors are only going to report their best holes, so you have to factor in what you know are the lower grades and make an estimate based on that.” Even so, the judgment was that Moto had outlined a deposit of at least 5 million ounces of gold.

“The first thing we did,” Mark Bristow, Randgold's chief executive, told me at a meeting in Cape Town, “was to get the [Congolese] government to buy in. I told them, ‘If you are not supportive of our bid, we will not go ahead. We promise we'll build a mine: here are our plans. We are launching a hostile takeover [of Moto]. Are you behind us? We don't want a fight. We don't want an auction. We want to kill it.' ”

Bristow is a fifty-two-year-old South African with a Ph.D. in geology and the build and temperament of a Cape buffalo. He has a weakness for such diversions as hurling himself out of airplanes for a thirty-second free fall; shooting Grade-V rapids on the Zambezi River; and bungee jumping at Victoria Falls, where you drop ninety-five feet before you reach the end of the cord. He has homes in London, Johannesburg, Mauritius, and the ski resort of Jackson Hole, Wyoming. But mostly he lives in a succession of airplanes, crisscrossing Africa on the hunt for gold.

With its joint venture partner, AngloGold Ashanti, Randgold took a run at Moto in February 2009. With $258 million in the bank, the South Africans were “cashed up.” But they had competition—Lukas Lundin, a Vancouver-based Swedish minerals magnate. One of Lundin's companies was Red Back Mining, which at the time was riding high on the success of its Tasiast gold discovery in Mauritania, a property swelling in value as the gold price rose through $1,000 and the size of the deposit grew by bounds. Red Back made an all-paper bid—an offer in which the currency was Red Back stock. The offer valued Moto at $486 million. “There is no question in our minds that [it] is a world-class gold project,” Red Back said.

Randgold responded by taking a “blocking stake” in Moto—a technical maneuver allowing it to block the Moto board from accepting the Red Back offer. Moto was listed in Toronto, in the province of Ontario. Under Ontario securities law, a takeover needed the support of two thirds of shareholders. Randgold had managed to get voting control of just over a third of Moto's stock, effectively preventing the two-thirds quorum from forming. Randgold did not own the shares, but could vote them through a “soft lock” agreement with the actual shareholders. A soft lock commits the participating shareholder to support a course of action, but only to a point. That
point, for example, might be an even better deal than the one Randgold was contemplating. In such a case the lock would dissolve and the shareholder would be free to take the better offer. Randgold's control was thus provisional, but it prevented the Moto board from accepting Red Back's offer right away.

Bristow worked on his counterbid while roaring north up Africa on a forty-nine-day motorcycle trip from Cape Town to Cairo with his two sons and three of his friends. “We had a huge intercom system on all the bikes,” said Grant Bristow. “Helmets were wired so we could take cell phone calls individually by satellite. But if you used the intercom to talk to somebody else, you overrode any incoming phone call. So there would be these extended periods when Dad was doing business and no one was allowed to talk.”

They were riding heavy BMW bikes with special after-market shocks to handle the brutal roads. “In northern Kenya there was this massive corrugation from the truck convoys, and four of the bikes blew their shocks,” Grant Bristow said. Worse than the discomfort was the danger: Sudanese bandits lie in ambush for the convoys on that stretch of road.

The riders made it through. Bristow cobbled together a half-stock–half-cash offer that was $30 million sweeter than Red Back's. By the time the riders got to Addis Ababa, Randgold had Kibali in its pocket.

Cashed-up tycoons were the order of the day. Like Bristow, they all seemed to glow with the oxygen of extreme sports.
Red Back's Lukas Lundin, the scion of a Swedish mining-and-oil dynasty whose founding asset, Lundin Petroleum AB, had rivaled Apple Inc.'s spectacular stock performance by multiplying its value fifty times since it had started trading in 2001, had climbed Mount Kilimanjaro, competed in the Paris-Dakar motorcycle race, and liked to plunge
down thickly wooded mountainsides in pursuit of the thrill of extreme skiing. When I was in Cape Town at a mining convention after the Kibali visit, the halls were thronged with people debating whose was the mine of the century—Bristow's Kibali or Lundin's Tasiast, although by then Lundin's role at Tasiast was that of shareholder in a company he did not control.
He had sold the Mauritanian property for a pack of stock in a company run by another high-octane mogul.

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.

I
N
C
ONGO, 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.