Indonesian sale nets Newmont US$1.3B

VANCOUVER — Newmont Mining (NYSE: NEM) indicated earlier this year that it was in talks to divest its Indonesian business unit to a consortium of local investors, and on June 30 it hammered out a US$1.3-billion deal with PT Amman Mineral Internasional (PT AMI).

The agreement marks the end of the U.S. company’s often-turbulent investment in Indonesia, which included semi-annual export permit renewals, arbitration claims and potential involvement in building a domestic smelter.

Newmont’s Indonesian crown jewel has been the Batu Hijau copper-gold mine in the southwest region of the island of Sumbawa, which hit production in 1999 and averaged 328,000 oz. attributable annual gold production.

The Batu Hijau copper-gold mine in the southwest region of the island of Sumbawa, in the District of Sekongkang, West Nusa Tenggara Province, Indonesia. Credit: Newmont Mining.

The company agreed to sell its 48.5% stake in PT Newmont Nusa Tenggara (PTNNT) for cash proceeds of US$920 million and contingent payments of US$403 million tied to metal price upside and development of the Elang prospect. Newmont’s joint-venture partner, Japan’s Sumitomo Corp., also agreed to sell its ownership stake.

Indonesian oil and gas outfit PT Medco Energi Internasional has acquired a controlling stake in PT AMI for US$2.6 billion. Medco will be joined in the consortium by an investment firm led by banker Agus Projosasmito, or AP Investment, which received funding from three major Indonesian banks.

“This deal monetizes future cash flows to improve our balance sheet and portfolio, lowers our risk profile and focuses on gold assets in the Americas and Australia,” Newmont president and CEO Gary Goldberg said during a conference call.

“It also allows us to essentially self-fund our growth pipeline, which is scheduled to add 1 million oz. gold to our annual production over the next two years.”

And risk management was a theme in Newmont’s narrative around the Indonesian sale. The company points out that its gold production from North America and Australia represents 75% of its guidance forecast, and that it expects to have 92% of its reserves in gold.

“Our goal is to build a portfolio of long-life, low-costs assets with technical and socio-political risks we are equipped to manage,” Goldberg said. “We’ve made great strides over the past three years when you look at what we’ve divested versus where we are reinvesting. The results are improved mine life and production, and lower risk.”

Newmont highlighted that the cash proceeds would be used for more debt repayment, to fund its “highest margin” projects and possibly raise its dividend.

Management also announced on the call that it had also approved the NW Exodus gold project at its Carlin property in Nevada, which would presumably require funding.

Newmont expects to close the Indonesian transaction this quarter following regulatory approvals and other conditions, including: government approval of the PTNNT share transfer, a valid export licence at closing, tax resolvement and no events that would lower Batu Hijau’s value.

Newmont has generated $1.9 billion in proceeds from asset sales and lowered net debt 37% since 2013.

The company is advancing four development projects in the U.S., Australia and Suriname, which could add up to 1 million oz. gold production over the next two years.

“From my standpoint we have one of the best ‘in-house’ portfolios in the space. Clearly, our focus is on internal growth at this stage versus acquisitions,” Goldberg said.

“We took the opportunity when the gold price was down to close the deal for the Cripple Creek & Victor mine in Colorado (acquired from AngloGold Ashanti in mid-2015), and that was a good time to be in the marketplace.”

Scotiabank gold analyst Tanya Jakusconek noted that the latest deal valuation was “somewhat lower” than an estimated US$1.7-billion net asset value for the Indonesia business unit, but added that “the tensions and various issues with the local government created a prolonged overhang on the shares, which would be removed after completion of the sale.”

Jakusconek has a “sector outperform” rating on Newmont along with a one-year, US$40-per-share price target. Newmont has traded within a 52-week range of US$15.39 to US$40.49 per share, and closed at US$40.30 at press time.

The company has 530.5 million shares outstanding for a US$22-billion market capitalization.