Ushering in a new era in gold mining,
By presstime, Newmont had acquired more than 80% of Normandy’s 2.23 billion shares outstanding. The offer period closes Feb. 26, by which time Newmont expects to have reached the 90% acceptance level required to evoke Australia’s compulsory acquisition rules if necessary.
Under terms of the deal, Normandy shareholders receive A50 and 0.0385 of a Newmont common share for every share tendered. Payments are being made within five business days, using existing credit facilities.
Newmont CHESS depository shares are expected to begin trading on Feb. 25 under the ticker symbol NEM. A corporate office will be maintained in Australia, satisfying pre-conditions set by the country’s regulatory bodies, though the head office remains in Denver.
On Feb. 19, Franco-Nevada was delisted from the Toronto Stock Exchange and its shares replaced by Newmont exchangeable shares under the ticker symbol NMC. Franco shareholders had the option of accepting common or Canadian exchangeable stock, at ratio of 0.8-to-1.
The Franco merger was conditional on a 50.1% acceptance level from Normandy shareholders and will give former Franco shareholders 32% of Newmont’s resulting shares once the Normandy takeover is completed.
The fully expanded Newmont will have 394 million shares outstanding. It will also have an estimated market capitalization of US$8 billion, second only to industry leader
Takeover and transaction costs reduce Newmont’s cash position to US$288 million; however, pro forma operating earnings top US$972 million — the highest in the sector. Pro forma earnings jump by US$162 million for every US$25 rise in the price of gold.
Newmont still intends to unwind its own and Normandy’s hedge book and remain unhedged. Potential losses due to low gold prices should be offset by the inclusion of the newfound royalties.
The newly adopted stance on hedging was a major source of contention during the four-month bidding war with AngloGold (T.N.M., Jan. 28/02). The South African is currently the industry’s second-largest forward-seller, after Barrick.
Newmont assumes US$2.1 billion in net debt, giving it a net-debt-to-net-debt-plus-equity ratio of 22%. Its net book capitalization (the sum of net debt, minority interest, book equity and preferred stock) rings in at US$7.3 billion.
Newmont expects to realize US$70-80 million in annual after-tax savings in the first year alone. The savings reflect the elimination of duplication in such areas as exploration and the rationalization of operations, mainly in Nevada, Peru and Western Australia, where 69% of its reserve base now lies.
Most reserves
In terms of production and reserves, Newmont surpasses all — 8.6 million oz. annually from a reserve of 97 million oz. The projection includes a 49.5% interest in
Cash costs are expected to average US$175 million. Only Barrick and
North American operations now account for nearly half of Newmont’s output; Australian operations, a quarter; South America operations, 16%; and Asia mines, 10%. Among the larger Australian operations are Kalgoorlie (in which it owns a half-stake), Boddington (in which it owns 44.44%) and Jundee (100%).
Open-pit production at Boddington ceased in November 2001, but an underground development project promises to exceed previous production rates. Development awaits a new management structure, currently under review.
The Boddington underground mine is expected to churn out 500,000 oz. gold and 20,000 tonnes copper per year.
Cash costs are pegged at A$300 per oz., net of copper credits.
Reserves are estimated at 390 million tonnes grading 0.87 gram gold per tonne, plus copper. The primary deposit lies underneath the mined-out oxide cap and is part of an overall resource of 726 million tonnes that hosts 19.7 million oz. gold and 800,000 tonnes copper.
The material must first be ground using high-pressure rolls before being passed through a conventional processing circuit. The comminution technique, though not new to the mining industry, has never been used at a major gold operation.
Newmont’s new board of directors will initially consist of 17 members, including the existing 12. Among the appointees are Pierre Lassonde and Seymour Schulich, co-founders and former executive officers at Franco-Nevada, and Robert Champion de Crespigny, former chief executive officer at Normandy.
Lassonde is also slated to succeed Newmont President Wayne Murdy, who will remain chief executive officer and chairman. Schulich will continue running the merchant banking business out of Toronto.
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