St. LOUIS () -- Shares in Miramar Mining Corp. [AMEX:MNG; TSX:MAE] shot up more than 20% today on news that gold giant Newmont Mining Corp. [NYSE:NEM] will make a C$6.25 cash per share bid for the Canadian junior, an offer valued at about $1.53 billion.
The offer is the latest in a string of merger and acquisition activity for Newmont, which recently announced potential plans to team up with Evolving Gold [TSX-V:EVG; FSE:EV7] for and Cardero Resource Corp. [TSX:CDU; AMEX:CDY] for .
The move is in line with the strategy detailed by Newmont CEO and President Richard O'Brien to replace decreasing reserves through "exploration, development and acquisitions."
"That will ensure the probability that we can avoid decline, that we can extend reserve life and that we can, by definition, extend the option value of this company," he said at the .
Denver-based Newmont already owns about 15% of fully diluted shares in Miramar through a $36.4 million investment in Miramar's Hope Bay project in 2005. The Hope Bay property covers more than 1,000 square kilometres on the Arctic coast of Canada's Nunavut territory and holds indicated resources of 5.2 million ounces of gold at a grade of 4.51g/t and inferred resources of 5.5 million ounces.
"We made an initial investment in Miramar in 2005 because we saw the potential strategic opportunity offered by the Hope Bay project as part of our broader exploration and growth portfolio," said O'Brien in a .
"We have been impressed with the progress of the project since that time, and believe that, as a result of its scale, the true potential of the project can best be realized with the additional expertise and resources of a global gold company like Newmont."
Miramar's wholly owned Hope Bay project is a "strategic, forward-looking acquisition" for Newmont, Omar Jabara, Newmont's director of media relations, told RI.
The project is one of the largest undeveloped gold deposits in the world, he said, and the acquisition of Miramar is "consistent with (Newmont's) strategic focus on exploration and project development."
The Hope Bay greenstone belt holds three gold deposits: Doris, Madrid and Boston. Doris is more than 3 kilometres long and holds about 1.4 million ounces of resources. Mining is expected to commence in the fourth quarter of 2008. The first section to be mined, Doris North, is forecasted to produce 311,000 ounces of gold during its first two years of operation.
Madrid is 2.6 kilometres long with 7.5 million ounces of resources. It has the potential to be either an open pit or underground mine, but Miramar prefers open pit, said Tony Walsh, president and chief executive officer of Miramar, at the Denver Gold Forum. A mill is also scheduled to be built at this location.
"This is a huge system," he said. "I don't know of any other deposits this size."
Boston could also be developed as either an open pit or underground operation. It holds 1.5 million ounces of resources and continues down 1,000 metres.
"Between Boston and the huge Madrid system, we have the two cornerstone deposits to give us a long-term, significant production on the belt," Walsh said.
Newmont hopes the acquisition will enable the company to restore reserves. O'Brien pointed out at the gold forum than the firm cannot count on high reserves year after year, and "appropriate opportunities" for acquisitions would be considered to replace reserves.
"I believe over time we can't just rely on exploration," he said.
The deal - which represents a premium of about 29% over Miramar's 20-day average trading price on the Toronto Stock Exchange through Friday - has the unanimous support of Miramar's board of directors.
"We believe Newmont's offer takes into account the value of the existing resources at Hope Bay along with the significant upside potential," Walsh said in a release. "I firmly believe this is a world class project and that its value will continue to be realized under the direction of Newmont, a world class gold mining company."
Two-thirds of Miramar's shares must be tendered to Newmont to complete the offer. Miramar has a market capitalization of about C$1.39 billion with nearly 220 million shares outstanding and no debt. Full details of Newmont's offer will be disclosed to shareholders by the end of October, and Jabara said he expects the deal to be finalized in about two months.
Miramar shares surged 21% on the news, trading up C$1.10 to C$6.29 on the Toronto Stock Exchange - its highest value in the past year. Newmont posted a 2.23% gain, adding a dollar to $45.83 on the New York Stock Exchange.
Newmont, which will finance the acquisition through a $1.3 billion loan from JPMorgan Chase & Co. and Citigroup Inc., has the opportunity to benefit greatly from Miramar's assets. With gold prices hovering near 27-year highs, there is no doubt Newmont has high expectations for Hope Bay's nearly 10.7 million indicated and inferred ounces of gold.
Blackmont Capital analyst Richard Gray called the deal a "logical move" for Newmont and maintained his "hold" rating for the miner. He told clients in a note that it was not likely Newmont will have much competition in its bid.
Some Miramar shareholders, however, think Newmont is getting too much bang for its buck. Joe Foster, a fund manager for Van Eck Associates, which owned about 3.3% of Miramar as of June 30, told Bloomberg that he thinks Miramar is worth more.
"It's a great deal for Newmont," he said. "I'm not happy with the price. I did my valuation, and they have a great asset. It's world class."
Paradigm Capital Inc. analyst Don MacLean declined to comment on the deal, while Citigroup Smith Barney analyst John Hill said his firm would comment later in a note to investors.
to read RI's valuation of the deal by the numbers.