Gold CEO scandal is latest black eye for mining as setbacks mount

7th January 2024 By: Bloomberg

Gold CEO scandal is latest black eye for mining as setbacks mount

Endeavour Mining's Agbaou mine

Endeavour Mining’s shock firing of its chief executive has capped a miserable three months for the global mining industry — and an equally painful period for its shareholders.

The world’s biggest producers have spent much of the past decade trying to rebuild mining’s reputation, after a slew of bad deals and billion-dollar writedowns sent investors fleeing from a business already viewed by many as dirty and risky.

That attempted makeover has taken a battering in recent months: The mining industry has suffered blow after blow, costing investors billions and shaking faith in some of the industry’s biggest names.

In Panama, mass protests against one of the world’s largest and newest copper mines culminated in an order to permanently shut it down and wiped out more than half of the market value of owner First Quantum Minerals. Canada’s Teck Resources dropped 9% on a single day in October after revealing the latest cost blowout at its flagship Chilean project, while larger rival Anglo American’s surprise cut to its planned copper production sent shares plunging 19% on Dec. 8.

In South Africa, Sibanye Stillwater dropped as much as 25% in November after announcing a convertible bond sale. while an accident at rival Impala Platinum Holdings left 12 people dead and dozens injured.

The latest jolt came on Thursday, when Endeavour — the biggest gold miner listed in the UK — announced it fired CEO Sébastien de Montessus for “serious misconduct” after discovering an alleged “irregular payment instruction” of $5.9 million related to an asset sale. The shares plunged as much as 15%. De Montessus has separately said that the relevant decision didn’t cost the company anything and had no benefit for himself.

For the mining industry broadly, the fresh wave of setbacks comes as the sector is seeking to position itself as a vital part of the green transition because of its role supplying materials like copper, nickel and lithium that are needed to decarbonize the global economy. But to do that, the producers need supportive governments and local populations, as well as investors willing to fund them.

While the setbacks vary in nature, they reflect many of the perennial challenges facing the companies responsible for digging up the world's metals and minerals. Miners are fighting a growing battle with rising costs to build and operate mines, and many of the remaining deposits are in poorer countries, where governments and local populations are increasingly determined to seek a greater share of profits.

Panama’s move to “definitively” close First Quantum’s $10 billion copper mine — which opened just four years earlier and still has decades worth of copper to dig up — has sent shockwaves through the mining industry. The shares ended the year more than 60% lower after the loss of its biggest profit generator, and analysts have raised questions about the company’s balance sheet, with billions of dollars of debt maturing in the coming years.

Anglo American has also punished mining investors. The century-old company, long seen as one of the best mine operators, stunned shareholders by announcing it was slashing its copper production for the next two years, including a significant cut at its Los Bronces mine in Chile, as well as lowering output for nearly all the other commodities it mines.

The announcement wiped more than $6 billion off Anglo’s market capitalization in the steepest single-day fall since the global financial crisis.

The series of disappointments for the mining industry also comes against the backdrop of weak prices for its commodities — although gold has been an exception after hitting a record late last year — and soft demand from key markets such as China.

At Endeavour, the company said that de Montessus was fired after the board discovered an “irregular payment instruction” of $5.9 million. The company said it discovered the payment when it was reviewing previous acquisitions and disposals. That review is ongoing, with more deals still being assessed.

In a statement, de Montessus said he instructed a creditor of Endeavor to make the payment in 2021 to a security company, to offset money owed for essential security equipment.

The payment was connected to the sale of Endeavour’s Agbaou mine in Ivory Coast in 2021 to Allied Gold Corp., according to people familiar with the situation, who asked not to be identified discussing private information. De Montessus instructed Allied Gold to pay $5.9 million owed to Endeavour to another company, the people said.

“The decision had no additional cost to the company and did not benefit me personally in any way,” de Montessus said. “I omitted to inform the board that I had arranged for this offset, which I have freely accepted was a lapse in judgment.”