Newmont cashes out of Canadian Oil Sands

VANCOUVER — Newmont Mining (TSX: NMC, NYSE: NEM) has sold its stake in Canadian Oil Sands (TSX: COS; US-OTC: COSWF) to streamline its assets and reduce debt.

Newmont owned 6.5% of COS. The deal, which closed quietly on July 11, saw a banking syndicate buy Newmont’s COS shares for $608 million. The syndicate will sell the shares.

“Our investment in Canadian Oil Sands has returned a lot of value for Newmont’s shareholders,” said Omar Jabara, a corporate communications executive with Newmont, in an email to The Northern Miner. “This stake sale also will help streamline and rationalize our portfolio of assets.”

The value in the holding came from COS dividends, which have averaged $1.47 per share annually over the last three years.

Nevertheless, the move is no surprise. The recent decline in the gold price means there will be less money flowing into Newmont’s bank account over the coming years, yet the company has committed to spending $2.2 billion on development and expansion projects this year.

More generally, Newmont has been monetizing non-core assets to advance its next generation of major mines. It is focused on completing the under-construction Akyem gold mine in Ghana, adding a copper-leach circuit to its Phoenix mine in Nevada and expanding the mill at its Ahafo mine in Ghana.

Newmont is also reducing costs where possible. In June the company announced plans to lay off 30% of its Colorado staff over the coming months, and in its first-quarter results Newmont highlighted a 7% reduction in its all-in production costs, which saved the company $92 million over three months.

Analysts were generally pleased with the announcement. Adam Graf of Cowen and Co., for example, said the deal achieved a “good price” for the holding.

“The sale provides Newmont with much-needed cash and allows the company to avoid other capital-raising avenues,” Graf writes in a research note.

Newmont would not want to turn to the markets for capital at the moment. Its share price has been weighed down by the falling gold price, shedding almost 50% since October, or more than 60% since hitting $73 in late 2011. By contrast, Newmont is trading around $28 — a level not seen since late 2008.

After news of the COS deal, the market pushed Newmont’s share price down 18¢ over the day to close at $28.32.