Newmont Mining absorbs Newmont Gold

Newmont Mining (NEM-N) is acquiring all the outstanding shares of Newmont Gold (NGC-N) it does not already own.

The company will gain the remaining 6.25% of Newmont Gold in a tax-free merger and convert each outstanding share of Newmont Gold not already owned by the company into 1.025 shares of Newmont Mining. Fractional shares will be paid in cash.

The disjointed structure of Newmont is the result of a hostile takeover attempt in August 1987. Newmont retaliated by borrowing US$2.2 billion to pay shareholders a one-time dividend of US$33 per share. The ploy worked, but the company was left deeply in debt.

To pay off the debt, Newmont was forced to sell its non-gold assets, including base metal, coal, oil and gas interests. Essentially, the company led by the parent company, Newmont Mining, was cut back to the bone. Its only operating asset, Carlin Gold Mining, was renamed Newmont Gold, while Newmont Mining retained its Australian assets and a number of exploration properties, one of which became the Yanacocha mine in Peru. Over the next few years, Newmont slowly divested itself of its Australian assets, which became Newcrest Mining.

In 1994, Newmont Gold acquired all the assets of Newmont Mining, so as to give shareholders of both companies the same per-share equity. As a result, all exploration and production were carried out under the heading of Newmont Gold, whereas Newmont Mining became a holding company with a 94% interest in Newmont Gold.

Nonetheless, the two companies often traded independently of each other. As a result of the recent merger, however, Newmont Mining will be the only traded entity.

The transaction is expected to save US$485,000 annually in administrative costs. Newmont Mining expects to issue 10.7 million shares in the arrangement, which is due to close in mid-November.