Newmont to turn royalties into cash (July 16, 2007)

Newmont Mining (NEM-N, NMC-T) will discontinue its Merchant Banking Portfolio, the royalties and shareholdings it inherited in its 2002 takeover of Franco Nevada Mining.

The company said it would use proceeds from selling the assets to fund development and growth in the operating gold mining side of the company. It will look at floating a spinoff company, or direct sales of the assets, or some combination of the two.

Newmont also cleared 1.85 million oz. of forward sales contracts, at a price of US$578 million, leaving its production entirely unhedged. The buyout will result in a pretax loss of US$531 million, which will be recognized in second- quarter financial results. Newmont has traditionally sold most of its production into the spot market.

The royalty assets carried about US$1.7 billion in goodwill charges from the Franco merger, a loss that will also show up in the second-quarter statements.

Two obvious potential buyers for royalty assets are Royal Gold (RGL-T, RGLD-Q) and International Royalty (irc-t, roy-x), both based in Denver, Colo., which have followed the Franco-Nevada business model.