Home > Mergers & Acquisitions > Newmont to Buy Gold Miner in $2.32 Billion Deal

Newmont to Buy Gold Miner in $2.32 Billion Deal

February 4, 2011

“Newmont Mining Corp. said Thursday it is using a war chest swelled by the rise in gold prices to expand in Nevada through the acquisition of Fronteer Gold Inc. Newmont Mining, the world’s second-largest gold producer after Barrick Gold Corp., will pay 2.3 billion Canadian dollars (US$2.32 billion) in cash for the shares of Fronteer Gold, a Vancouver explorer with three projects in Nevada, including the Long Canyon project that holds a key position on a newly discovered gold deposit.

Newmont Mining will pay $14 a share for Fronteer, a 37% premium to a share’s value before the deal was announced. Fronteer’s board supports the deal, and its shareholders will vote on it in April. If approved, Newmont Mining expects the deal to close that month. If Fronteer shareholders reject the deal for a higher competing offer, the company will pay an C$85 million termination fee.”

Source: Wall Street Journal, February 3 2011

Observations:

  • The termination fee arranged by the Newmont negotiators protects the company from the risk of losses resulting from financial arrangements and deal work in case the deal is not closed. BHP Billiton is reported to have lost over half a billion in its attempt to acquire PotashCorp because of the financial arrangements it had to make to enable the offer.
  • The cash offer does include a special construction in which the Peruvian, Turkish and some Nevada exploration activities are combined in a new company: Pilot Gold. Pilot Gold will be 80% owned by current Fronteer shareholders and will be run by current Fronteer management, basically ensuring a continuation of the exploration company.

Implications:

  • A recent poll on this blog revealed expectations of high activity in M&A in coal mining (38% of respondents) and gold mining (25% or respondents). High coal and gold prices both give the miners in these sectors large war chests and increase the pay-off of synergies and expansion projects.
  • Barrick is not expected to come with a counterbid, and GoldCorp or other gold miners are unlikely to be able to offer a higher cash price.

©2011 | Wilfred Visser | thebusinessofmining.com

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