Goldsmith Should Never Have Gone For The Gold

Who gets the upper hand when two of the world's top dealmakers swap companies? Back in 1990, Lord James Hanson traded his 49% stake in Newmont Mining Corp. to his old friend, Sir James Goldsmith, for the Anglo-French financier's 1.7 million acres of timberland held by Cavenham Forest Industries Inc. From the beginning it seemed clear that one of these investment pros would come up short. After all, prices of timber and gold are driven by economic countercurrents.

Now it looks as if Goldsmith placed the wrong bet, while Hanson's move into timber has turned up aces. In the 2 1/2 years that Goldsmith, along with Lord Jacob Rothschild, has held his stake, Newmont has returned about $50 million in dividends, a paltry 1.5% annual yield on the $1.3 billion tied up. Admits Kenneth S. Richards, a director of Goldsmith's General & Oriental Investments Ltd.: "The cash flow certainly hasn't been as good as timber."

SUDDEN INTEREST. That's an understatement. Just look at Cavenham. It's churning out more than $100 million in cash a year. Buoyed by a tentative U.S. recovery and environmental restrictions on cutting that have helped lift prices, Cavenham should report $134 million in operating profits this year, up 33% from last year. "We've been delighted" with the investment, says Hanson PLC Vice-Chairman Martin G. Taylor.

Goldsmith tripped up largely because his apocalyptic predictions of economic disaster never materialized and thus failed to lift the price of gold--and Newmont profits. In late April, Sir Jimmy and Rothschild reduced their stakes by selling shares at $39.50 each--their value when the original trees-for-gold deal was struck. The buyer: big-time investor George Soros, whose sudden attraction to gold helped fire up gold prices, sparking a rise from $341 an ounce to nearly $360 within three days. The activity helped boost Newmont shares into the forties and gave Goldsmith and Rothschild a window to sell more shares at $44.50. Altogether, the sales brought in $690 million, and Goldsmith still holds 19.5% of Newmont and Rothschild 2.3%.

Now in semiretirement from the takeover world, Goldsmith recently has had a spotty track record--failed raids on two big British companies, BAT Industries PLC and Ranks Hovis McDougall PLC. "He's pretty disillusioned with takeover bids," says one source. But despite the Newmont sales, he still believes in gold's inevitable rise and is buying gold options and futures, which are more sensitive to gold sentiment. (Goldsmith didn't return phone calls.)

COAL TRADE. At Hanson, the word is natural resources. Moving away from its longstanding industrial and consumer products base, Hanson has been buying huge supplies of coal and aggregates, along with timber. In 1992, $4.4 billion in sales, or 28% of the total, came from natural resources, accounting for 31% of profits. Now, Hanson is wrapping up plans to swap its remaining gold interests to Santa Fe Pacific Corp. for its coal properties, valued at $500 million.

For Goldsmith and Lord Hanson, who once collaborated on the failed takeover of Goodyear Tire & Rubber Co., it's a sharp divergence of views. Hanson is betting on recovery to boost his resource and industrial holdings, while Goldsmith is still gambling on economic trouble to bolster gold. Clearly, both can't be right.

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