Newmont Mining (
) announced that it has signed a Letter of Intent (LOI) to sell its
Midas gold mine operation in Nevada to Waterton Global Resource
Management, Inc. The transaction is subject to certain conditions,
including execution and delivery of an acquisition agreement,
completion of confirmatory due diligence and receipt of all
required regulatory and third party approvals. In case the proposed
deal doesn't go through, the LOI will stand terminated
on October 14, 2013, unless extended by mutual agreement of
Newmont's management said that the proposed sale is in line with
the company's strategy to divest non-core assets in order to
generate greater shareholder value. With mining costs shooting up,
gold mining companies are trying to rationalize operations by
focusing on value generation instead of production growth.
See our complete analysis for Newmont here
The Midas Mine
Midas is an underground gold mine located in north central
Nevada which Newmont acquired through its merger with Normandy in
2002. The operations here consist of an underground mine, waste
rock area, crushing plant, conventional mill, refinery, cyanide
destruction circuit, tailings impoundment, and two settling ponds.
There are also ancillary facilities like a maintenance shop,
warehouse complex, administration and security building, and
facilities for distributing diesel fuel, gasoline, and propane.
Why Newmont Is Selling Midas
Gold mining companies haven't had it good in the recent months.
With the price of gold nosediving in international markets on talks
of QE tapering, a lot of gold miners had to record massive
impairments on the balance sheet in the second quarter. Newmont
recorded an impairment of $1.8 billion.
A lower price of gold translates to lower dividends for
shareholders as Newmont links dividends to free cash flow which got
hit as the company doesn't hedge itself against fluctuations in
gold prices. Faced with shareholder criticism, Newmont and other
gold companies have vowed to focus on generating value for
shareholders by cutting down on costs and wasteful expenditure and
getting rid of non-core assets.
Attributable gold production in Nevada was reported at
383,000 ounces in Q2 2013. Production increased by 1% from the
prior year comparable quarter due to new production from the
Emigrant site as well as higher grade and throughput at
Phoenix due to improved mill throughput in Nevada. However,
the growth in production was offset to some extent due to lower
grade of ore and lower production at Midas.
The reserves at Midas mine are very puny compared to those at
Newmont's other properties in the region. At the end of 2012, while
Newmont's Nevada mines had total proven gold reserves of 16.3
million ounces, Midas accounted for just 30,000 ounces of those.
Even probable gold reserves at Midas stood at 20,000 ounces out of
a total of 21.4 million ounces. Thus, we think that even though it
may be a good asset, retaining Midas makes little sense for Newmont
from a long term strategic perspective. Its funds and energies
would be better directed at large scale, long term growth projects
like Conga in Peru, Akyem in Ghana and Batu Hijau in Indonesia.
We have a
Trefis price estimate for Newmont Mining of $22
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