Wednesday, October 10, 2007

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Gold Rush of 2007: Mining Mergers
Newmont-Miramar PactShows Push in IndustryTo Focus on the Metal


By KRIS MAHEROctober 10, 2007; Page C2

Newmont Mining Corp. is betting that the gold boom has legs.

The world's second-largest gold producer by output after Barrick Gold Corp. agreed yesterday to acquire gold miner Miramar Mining Corp. of Canada for C$1.5 billion (US$1.53 billion).
The deal marks the Denver miner's latest move to focus its business around its core gold operations. It is among the first in what could be a wave of industry consolidation. Yamana Gold Inc. announced last month that it had agreed to acquire Meridian Gold Inc. for $3.6 billion.
The Newmont deal is a further sign that gold miners are simplifying their operations to take advantage of gold prices, which have risen to 28-year highs, and to become more attractive to investors who want a more focused company. Newmont in July said it would discontinue its merchant banking business unit. It also eliminated its entire gold hedge position, intended to protect the company if gold prices fell.

"Investors are demanding that gold companies become pure-play gold companies," said Peter Gray, a managing director at KPMG Corporate Finance LLC.

Mr. Gray said he expected Newmont to make additional acquisitions as it jostles with Barrick. Barrick has grown in recent years through acquisitions while Newmont stuck primarily to developing its own reserves. "This is the start of a heavyweight bout between Newmont and Barrick," he said.

Last week, gold futures in New York finished at $747.20 per troy ounce, their highest closing price since January 1980. On the Comex division of the New York Mercantile Exchange, gold finished yesterday at $737.40, up $4.60 per troy ounce, or 0.63%.

"We believe the price is going up. We are also eliminating the hedge book to give us full exposure to a rising gold price. This deal is another piece of that strategic mission to focus on our core gold business," said Omar Jabara, a spokesman for Newmont. "We're definitely looking at acquisitions, but they have to meet our strategic criteria and objectives." He added that the company doesn't see itself as a Barrick competitor, and that the two are partners in some places.
The deal values Miramar at C$6.25 per share, a 20% premium over Monday's close price of C$5.19 on the Toronto Stock Exchange. Yesterday its shares rose C$1.09, or 21%, to finish at C$6.28.

Shares of Newmont rose $1.19 to $46.02 in 4 p.m. in New York Stock Exchange composite trading. Miramar had a net loss of C$2.8 million in the second quarter.

With the acquisition, Newmont said it would be able to develop the Hope Bay Project, one of the largest undeveloped gold reserves in North America, which extends over 400 square miles in Nunavut Territory in Canada and is controlled by Miramar. Newmont made an initial investment in Miramar in 2005.

Miramar has been exploring the Hope Bay reserve since 1999 and said it has identified 10.7 million ounces of gold as of the end of last year, but it hasn't begun active mining.

Write to Kris Maher at kris.maher@wsj.com

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