Newmont Expands Australian Presence

Colorado-based Newmont Mining Corp. (NEM - Analyst Report), the world's leading producer of gold, completed its acquisition of 100% of the Boddington project on June 25. Boddington – the largest gold project in Australia – is a large open pit mine, located 130 kilometres southeast of Perth. Previously, Newmont owned 66.66% of the project and completed 96% of the construction as of May.

In January, Newmont announced plans to purchase the remaining 33.33% interest in the project from AngloGold Ashanti Australia Ltd. – a wholly owned subsidiary of South Africa-based AngloGold Ashanti Ltd. (AU - Snapshot Report).

The total consideration for the 33.33% interest consists of $750 million paid in cash at closing; $240 million payable in cash and/or Newmont common stock, at Newmont's option, in December 2009; and a royalty capped at $100 million, equal to 50% of the average realized operating margin (if any) exceeding $600 per ounce, payable on a third of gold sales from Boddington.

Newmont intends to finance this acquisition by using a part of the net proceeds of about $1.7 billion from its recent IPO of 34.5 million shares of common stock and $517.5 million principal amount of 3.00% convertible senior notes due 2012.

The start-up of the project is expected soon. It has an anticipated 12-month ramp-up schedule. Newmont continues to expect total capital expenditures of $2.6 billion–$2.9 billion on a 100% basis for the project. It also sees the project adding between 375,000 equity gold oz and 450,000 equity gold oz in 2009.

Post-acquisition, Newmont expects its proven and probable reserves to increase by 6.6 million oz. Further, the company expects that the completion of the acquisition will lead to average annual gold sales of approximately 1 million oz at costs applicable to sales of approximately $300 per oz (net of by-product credits) for the first 5 years of operation. The project with an expected mine life of more than 20 years will be the Australia’s largest gold producer upon completion.

We continue to recommend Newmont as Hold with a target price of $44.00.