Mining is in Charles Jeanness blood. He grew up in
Nevada, a state that is the largest producer of gold in the
U.S. and would rank third or fourth in the world were it an
independent country. His father was part of a small group of
investors who bought and revived an abandoned gold and silver
mine in Nevada. Though the venture failed after prices fell,
the investment sparked an interest in mining on the part of the
younger Jeannes. But he also wanted to be a lawyer. After
getting a BS in business and political science from the
University of Nevada, he earned a law degree from the
University of Arizona, which had a mining and environmental law
program, in 1983 and practiced law until 1994 as head of the
natural-resources section at Woodburn and Wedge in Reno.
Jeannes eventually took a job with his biggest client,
Placer Dome, a Canadian gold mining company, then moved to
Glamis Gold, a Reno-based gold miner, where he was executive
vice president, general counsel and secretary until Glamis
merged with Goldcorp in November 2006. He became
Goldcorps CEO in December 2008.
His company has had a tough year, dealing with water
shortages in Mexico, where it operates three mines, and coping
with seismic activity that has reduced production at its Red
Lake mine in Ontario, Canada. In early July, Goldcorp, the
second-largest gold mining company after Barrick Gold Corp.,
warned that those problems would cause its gold output to
decline this year. Earnings fell 45 percent in the second
quarter of 2012 from the same period a year earlier, to
$268 million, on a 15 percent decline in revenue, to
Notwithstanding its current difficulties, the company
operates low-cost mines in stable regions of the world and has
a rich pipeline of new mines, analysts note. Goldcorp employs
14,000 people and has five mines in Canada and the U.S., three
in Mexico and one each in Argentina, the Dominican Republic and
Guatemala. It has two more under development, one in Argentina,
the other in Guatemala. Those properties are valuable assets
because the supply of gold, regardless of its price, is not
Institutional Investor Senior Writer Julie Segal
met with Jeannes recently to discuss how Goldcorp is meeting
these and other challenges.
Institutional Investor: Macroeconomic
forces have become increasingly volatile. Whats it like
to operate in this climate?
Jeannes: If you put the gold price on a
chart and laid it next to the Dow Jones over the past 15 years,
youd find that gold is no more volatile, which is quite
different from historical views. Were impacted by
volatility in our commodity pricing, and our business is
different in that we have no control over our revenues as a
result. That makes a particularly challenging business, but
its just something we have to deal with.
That said, its been a fantastic business to be in
because were part of an overall commodity, hard-asset
supercycle thats been in place for going on 15 years.
Its generally followed the rise of demand from emerging
economies like China, but there are a lot of other reasons for
the increase in the gold price. Its really changed our
business over the past decade.
Tell us about those changes.
In the 80s and 90s, all we were was an option on
the gold price. Anyone who wanted exposure to the optionality
of the gold price had two choices: They could buy coins and
other kinds of physical gold, which carry challenges for
storage and insurance and the like, or they could buy gold
equities. ETFs gave them a very viable third choice and so
required gold equities to be more disciplined and generate
returns like any other business. Thats changed the nature
of our entire sector.
The downside is that some of the demand that could
previously have gone into gold equities is no longer there.
People are simply buying the ETF and not looking to our
business. But the net effect has been quite positive because
its created a whole new class of investors who previously
wouldnt have looked at any kind of gold investment. And
once investors become comfortable with a sector, they look for
opportunities to improve their returns, and we think we provide
leverage to the gold price that the ETF doesnt. We grow
organically, both through exploration and by delivering on
these projects that weve already got on hand. And so we
find that as new investors come in and get comfortable with
gold, they often then look to the equities and companies like
Goldcorp for enhanced returns.
That sounds like a huge change.
Its mainly cultural, because both the company that I
came from, Glamis Gold, and Goldcorp before we merged were
start-ups that bought assets and grew dramatically with the
construction of a few new mines. But you didnt need all
of the financial and human resources, and risk management, and
IT, and other functions of a business that are required for
long-term success, so much of what weve been doing over
the past several years has been building that capacity. Some of
our peers, like Barrick or Newmont, have been around for
20-plus years and had quite a head start, so weve been
working very hard to build that capacity, and I think
weve done a good job.
How do you maintain the entrepreneurial spirit of
Thats the trick. You dont want to stifle that
entrepreneurial spirit that made us so successful as smaller
companies. Weve all been very focused on not building a
bureaucracy, not putting in so much process and procedure that
we stifle the initiative and entrepreneurial culture that we
What are your competitive advantages?
Weve had for the past five years strong cash flow and
low-cost production, combined with a low political risk profile
because weve chosen to grow in areas of relatively low
political risk. Weve also had a strong, and some would
say too conservative, balance sheet. And were growing
production more than 50 percent over the next four-plus years.
Thats based on constructing mines that we acquired, in
some cases, many years ago. We see very strong growth and cash
flow and earnings over the coming years, based on that new
What initiatives are crucial to your future
We just need to execute. Weve had operational issues
that required us to lower our guidance for the year back in
July. And those kinds of things scare people away from us as an
investment and back to the ETF.
Youve encountered water supply issues at
Peñasquito and permit problems in places like Chile. How
do you manage those uncertainties?
Were strengthening our enterprise risk management
system so that we identify risks and quantify them so that
neither we nor our investors are surprised if certain things
happen. I dont accept that some things are beyond our
control. Clearly, they are. But we get paid to manage those
things, and I think we can. At Peñasquito, had we done a
better job of assessing that risk, we would have known and
communicated to the market that there was a risk that water
supply would be less than what we needed, and then when it
happened it wouldnt have been such a negative surprise.
You can manage those things if you identify and report on these
kinds of risks and work them into your forecasts better than we
Talk a little bit about the other risks facing your
company, including what you call resource
The No. 1 risk to our business overall is that governments
have been in deficit spending mode and looking for new sources
of revenue. So theyve been increasing royalties,
increasing taxes. We need to do a much better job educating
governments as to the costs of doing business. We have
significant capital investments that we need to make, and if
you look at it all, were not making windfall profits.
Those kinds of discussions with governments tend to be had
after some proposal comes out to increase a tax.
Its the nature of mining, though, that
youre dependent on a government for support.
People think that we have no choice but to go into a certain
country because thats where the gold is. But we can
choose to look for gold in a place or not, and if the
government has proven to be particularly problematic, we
wont go there, and they need to understand that.
Mining is hardly uncontroversial. How big a risk
does the potential backlash represent?
Id look very directly at Guatemala and the Marlin mine
there. There was negative press and some opposition to the
mine, largely based on lack of understanding of what it was
really about. As time has gone on, weve seen a tremendous
increase in the health and prosperity of the communities around
the mines. The number of children who are attending school has
gone up by 70 percent over the past five years, because their
families now have the wherewithal to let them go to school
rather than helping out in the fields.