Australia’s Evolution Mining (ASX: EVN) has agreed to buy Newmont Goldcorp’s (TSX: NGT; NYSE: NEM) Red Lake complex in Ontario for US$375 million in cash and contingent payments of up to another US$100 million tied to resource discoveries.
Evolution has committed to invest US$100 million on the existing operations and another US$50 million on exploration over three years.
The underground gold mining complex in Ontario has produced over 25 million oz. gold at an average grade of more than 20 grams gold per tonne since it started commercial production in 1949.
The operation is made up of the Red Lake and Campbell complexes, which each consist of an underground mine and processing facility, and the Cochenour mine.
This year the Red Lake complex is expected to produce 150,000 to 160,000 oz. gold at an all-in sustaining cost (AISC) of US$1,600 per ounce.
Last year the complex produced 276,000 oz. gold at AISCs of US$988 per ounce.
Evolution Mining notes the drop in production and higher costs expected this year are due to Newmont Goldcorp’s limited investment on development capital during the year “pending the outcome of the sale process.”
The company also pointed out that there was a three-month pause in operations at the Cochenour mine due to water ingress mitigation.
Evolution said its commitment to spend US$100 million on the asset over the next three years “is expected to see the operation recover from this temporary decline in production.”
The company also plans to drill 100,000 metres a year in 2020–2022. The highest-priority targets, Evolution says, are the Upper Main zone and INCO at Cochenour, the Aviation complex at Red Lake and HG Young, which is 1 km north of Campbell.
“The small footprint of Red Lake’s historic, high-grade orebodies enhances the potential for further discoveries within the complex,” Evolution stated.
Under the US$100-million contingent payment, Evolution will pay Newmont Goldcorp US$20 million for each 1 million oz. of new gold resources it adds to the Red Lake resource base over 15 years. The payment applies to the first 5 million oz. of new resources.
Evolution, which owns five mines in Australia, will pay for the acquisition from a new five-year, A$600-million (US$400-million) term loan from a syndicate of banks.
Brian MacArthur of Raymond James says the price is “reasonable,” and the contingent payment “provides Newmont with exposure to future discoveries.”
“Over the past several years, we believe Newmont has done a good job of restructuring its portfolio and improving its operational excellence, and offers investors exposure to gold through a lower-jurisdictional-risk, global portfolio that generates solid cash flow and is supported by a strong balance sheet,” he says. “In addition, it is the only S&P-listed gold stock.”
Jackie Przybylowski of BMO Capital Markets notes the valuation is in line with her estimates and says the sale was expected.
“It was well-telegraphed by the company,” she writes in a note. “In general, Newmont Goldcorp had indicated when the combination of these two companies was first announced in January 2019 that it would target US$1 billion to US$1.5 billion in asset divestitures over 2019 and 2020. Divestment of Red Lake specifically was also anticipated — NEM president and incoming CEO Tom Palmer noted in September that portfolio optimization would include [the] potential sale of Red Lake.”
The analyst has an “outperform” rating on Newmont Goldcorp and a one-year target price of US$50 per share.
At press time, the company was trading at US$37.83 per share within a 52-week range of US$29.77 to US$41.23.
Newmont Goldcorp has a US$31-billion market capitalization.
More than anything this reflects another step towards the death of the Canadian capital markets as a pool of risk funding for mining. Why else would an Australian be grabbing a jewel of the Canadian gold scene? Australia has kept the banks away from the independent dealers whereas in Canada the banks have crushed the independents AND taken control of the regulators. Bravo! Another downward step in the death of Canada as a source of mining risk capital.