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Newmont Mining Co.'s deal Tuesday to buy Miramar Mining for $1.5 billion will give the Denver-based gold giant a 100 percent stake in a promising, largely unexplored field in the Canadian Arctic.
The offer - a 20 percent premium over Vancouver, Canada-based Miramar's closing price last Friday - also is consistent with Newmont CEO Richard O'Brien's recent moves to focus purely on gold, and to restock reserves.
But some analysts wondered if Newmont overpaid.
"It's an interesting move, not unexpected, because Newmont has invested in Miramar before," said gold stock analyst Patrick Chidley of Barnard Jacobs Mellet in Stamford, Conn. "I think they're paying quite a high price, based on Miramar's resource statement at the end of 2006."
Newmont, in 2005, had acquired an 8.4 percent stake in Miramar's Hope Bay project in Canada's far north, with warrants and options to own as much as 15 percent.
O'Brien was in London and not available for comment, but he said in a statement that the transaction represented the "next logical step" for Newmont as it looks for economic opportunities to boost gold reserves.
Newmont warned last month of declining reserves from older mines.
Hope Bay - Miramar's biggest asset with an estimated 9 million ounces of gold - may be viewed by Newmont as lower risk than mining outside North America, Chidley said. Newmont, which has about 15,000 employees and $5 billion in annual revenues, has operations in Australia, Ghana, Indonesia, Peru and the United States. It has fought against allegations, ranging from claims of pollution in Indonesia to exploiting labor and the environment in Peru.
Newmont officials described Hope Bay as being one of the top known but undeveloped gold deposits in the world. O'Brien said he was impressed with Miramar's progress in exploring the 600-square-mile area in the remote Nunavit Territory.
Miramar Executive Vice Chairman David Fennell said barges with equipment are headed to the Arctic Coast and that Miramar will begin construction later this year on the underground Doris North mine, the first of three sites identified for production. He said the company has construction permits and soon will have operating permits.
Thomas Winmill, portfolio manager for the New York-based Midas Fund, which owns 1.4 million shares of Miramar, described the Canadian deposit as being in a "mining-friendly jurisdiction." Diamond and gold mines are already in the region.
He and Chidley said local communities, inhabited in part by the Inuit, the indigenous people of the area, are keen to attract revenue-generating businesses to boost the economy.
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Environmental opposition, however, could be an issue with the Hope Bay project, they said. "It's in fragile ecosystems in the Canadian North," Chidley noted.
Fennell said that though the permitting process has been slow, he's not aware of any environmental opposition. "We've worked incredibly hard and have an extremely good relationship with the government and regulators and all of the communities," he said.
The Nunatsiaq News, which covers the area, reported that Miramar applied for permits in 2002, but was told in 2004 to go back and produce a plan for monitoring wildlife, managing water, using a lake for mine tailings disposal and assessing socio-economic impacts.
Winmill, of the Midas Funds, said the Newmont-Miramar deal probably will be good for both companies.
"Miramar is pretty entrepreneurial," Winmill said. "They've got some good geologists and mine managers, but this is going to bring a whole new level of expertise and technical ability."
That should pay off in terms of realizing the full value of the Hope Bay deposits, he said.
Fennell said Miramar has about 40 executives and support people, and about 35 geologists and technical staffers. The Doris North mine is expected to employ more than 100, according to news reports. It was conceived to be a relatively small entree to a bigger treasure trove.
Newmont's takeover offer has the unanimous support of the Miramar board of directors, but still must be approved by Miramar shareholders.
O'Brien has set the stage for Newmont to be a pure play gold company in part by putting the company's merchant banking business up for sale in July.
"One of the reasons we did that was to be able to invest in new gold projects," said Newmont spokesman Omar Jabara. "We're obviously bullish on gold, and we believe the price is going to continue to go up."
O'Brien record
Richard O'Brien's moves since taking over as Newmont CEO in July:
• Eliminated the company's hedging contracts. They protected the company from declines in gold prices, but prevented Newmont from taking full advantage of increases in prices.
• Put up for sale Newmont's merchant banking business, which owned mineral, oil and gas royalties.
• Focused on boosting declining gold reserves, by moving to acquire Canada's Miramar Mining, which since 1999 has been exploring a promising area in the Canadian Arctic. |
Prospectus
