Orla Mining expands to Canada with US$850M Newmont mine buy

Orla Mining (TSX: OLA) is buying Newmont’s (NYSE: NEM) Musselwhite gold mine in Ontario for US$850 million, enabling it to more than double production of the precious metal as prices hover near record highs. 

Orla said it will pay Newmont US$810 million in cash, with additional instalments contingent on gold prices. 

Musselwhite, an underground gold mine in northwestern Ontario, has been operational for over 25 years. It had 1.5 million oz. of proven and probable gold reserves at the end of 2023.

For Orla, which operates the Camino Rojo mine in Mexico, acquiring Musselwhite is a transformative step. The deal will elevate Orla from a single-asset producer to a multi-asset miner, increasing gold output by 140% to 300,000 oz. per year. 

“We intend to not only continue to operate Musselwhite, but to seek optimization opportunities and to invest in its future, grow its reserves and resources, and extend its mine life,” Orla’s president and CEO Jason Simpson said in a statement. “The mine has a proven history of successful production, cash generation, and reserve replacement, having consistently added to mine life.” 

Free cash flow 

This acquisition also boosts Orla’s exposure to record gold prices, which have surged this year as global risk rises and interest rates have started to decline. Musselwhite is expected to generate more than US$150 million in average annual free cash flow over the next six years, the company said.

Orla chose not to issue equity to fund the purchase. Instead, it employed a combination of financing: selling 16% of its production over three years as part of a gold prepay arrangement; increasing debt from Canadian banks to around $250 million to $350 million; and a $200 million convertible debt facility that allows conversion at a share price 40% higher than now for cornerstone shareholders such as Franco-Nevada co-founder Pierre Lassonde.

The strategy aims to pay off the debt within three years, with the possibility of a quicker payback if gold prices remain favourable, Simpson told BNN-Bloomberg television on Monday. 

Contingency payments

The deal requires Orla to pay Newmont up to US$40 million if gold exceeds US$2,900 per oz. and US$3,000 per oz. during the first and second full-year periods following the purchase’s expected closure in next year’s first quarter.

Orla also sees further growth through the development of the South Railroad project in Nevada, which could take its output to 500,000 oz. per year. 

The transaction is the first in a series of planned divestments by Newmont. The Denver-based gold miner aims to raise up to US$2.9 billion from selling non-core assets following its US$17 billion acquisition of Newcrest.

Other Canadian assets currently on the market include the Éléonore and Porcupine mines and the Coffee project. Additionally, Newmont plans to sell its Cripple Creek & Victor mine in Colorado.

So far, the gold giant has sold two Australian assets for up to US$475 million and has agreed to sell its Akyem mine in Ghana to China’s Zijin Mining Group for up to US$1 billion.