St. LOUIS (ResourceInvestor.com) -- Newmont Mining [NYSE:NEM] announced today that it will focus its attention on its "core gold operations" and sell off its royalty assets and other non-core investments to Franco-Nevada Corp. for $1.3 billion.
"We've taken a number of strategic positions (to focus on the core gold business) since July when Richard O'Brien become CEO," Newmont spokesman Omar Jabara told Resource Investor.
Newmont's goal is to become the "gold company of choice," he said. "We're looking to leverage our resources on those core gold operations."
In order to follow that vision, Denver-based Newmont will sell to Franco-Nevada a number of royalties and investments, including 109 royalty interests in precious metals and base metals properties and more than 100 royalty interests in oil and natural gas properties. The company expects a pre-tax gain from the discontinued operations of about $950 million in the fourth quarter, it said in a statement.
Jabara said Newmont will use the money from the sale to finance its recent C$1.5 billion acquisition of Miramar Mining Corp. [AMEX:MNG; TSX:MAE], majority owners of the Hope Bay project in Nunavut, Canada. Hope Bay is a greenstone belt with three deposits holding total indicated resources of 5.2 million ounces of gold at a grade of 4.51g/t and inferred resources of 5.5 million ounces at a grade of 3.6g/t. Production is expected to begin in the fourth quarter next year.
Last month, Newmont also announced potential plans to team up with Evolving Gold [TSX-V:EVG; FSE:EV7] for and Cardero Resource Corp. [TSX:CDU; AMEX:CDY] for .
Jabara would not speculate on any further merger or acquisition activity, but the company is "continuing with a fairly aggressive exploration program," he said.
As gold prices continued to be bullish, Newmont announced its decision to liquidate some of its portfolio earlier this year in order to refocus its attention on gold.
"As we previously disclosed, we embarked upon a dual-track process to maximize the value of these assets for the benefit of our shareholders, and we are extremely pleased with the outcome," O'Brien said in the press release. "We remain focused on our core gold operations and intend to reinvest the proceeds to increase gold price leverage for our shareholders."
Franco-Nevada will fund the acquisition of Newmont's non-core assets through its initial public offering on the Toronto Stock Exchange next week. The company expects to make approximately C$1.1 billion from the IPO - the Toronto Stock Exchange's biggest debut this year.
Franco-Nevada was created by former Newmont executives as a resource sector royalty company that will hold stakes in a number of mines and operations.
"Assuming Franco is able to raise the money, we think it's a good deal for Newmont," Patrick Chidley, an analyst for Barnard Jacob Mellet Securities, told RI.
He said Newmont will be able to use the money to acquire Miramar and keep debt low on its balance sheet.
Putting All Their Eggs in One Basket?
But is it smart for Newmont to turn their focus entirely on gold?
Gold has been in what some analysts estimate as about a seven-year bull run, but lately the yellow metal has been sputtering. Today alone, gold futures fell $13.20 to $789.10 per ounce. The recent corrections have been enough to grab the attention of the bears, who are beginning to voice their .
But most analysts remain bullish on gold, predicting averages of $800 or more in 2008 - meaning Newmont could be well-positioned as it focuses solely on gold. Remember, as economist Martin Murenbeeld pointed out at the , the shortest recorded gold bull cycle lasted 10 years in the 1970s - meaning that at seven years, this bull still has room to run.
Newmont shares closed down $1.70 today at $49.69, a 3.31% drop.
