Newmont Mining (NEM-N) is the latest to join the wave of merger and acquisition activity that is washing over Canadian mining companies.
In a move to expand its growth profile in Nevada, Newmont has announced plans to acquire Fronteer Gold (FRG-T, FRG-X) and its gold assets — in particular its Long Canyon project, which Newmont believes has Carlin trend-like metallurgical and geological characteristics.
“Long Canyon holds the potential to grow beyond three to four times Fronteer Gold’s current stated resource estimate, with an attractive average gold grade of approximately 2.3 grams per tonne,” Richard O’Brien, Newmont’s president and chief executive said in a statement, adding that Fronteer Gold’s “wider portfolio of assets offers further upside potential for our portfolio.”
Fronteer’s Long Canyon project is just 161 km from Newmont’s existing infrastructure, which adds the possibility of development and operating synergies.
Last month Fronteer published an interim resource estimate for Long Canyon with measured and indicated resources of about 1.4 million gold ounces and inferred resource of about 0.8 million gold ounces.
Under the proposed deal, Fronteer Gold’s shareholders would receive $14 in cash and one common share in a new company called Pilot Gold for each common share they hold in Fronteer.
The cash consideration represents a premium of about 37% to Fronteer’s closing share price on Feb. 2, and values the company at about $2.3 billion.
The news sent Fronteer’s shares surging $4.07 apiece or 39.7% to $14.32 per share on 40.7 million shares trading hands. Over the last year the company had traded between a low of $4.04 and $12.22 per share.
In addition to Long Canyon Fronteer also owns a 100% stake in the Northumberland project and a joint-venture interest with Newmont in the Sandman project, also in Nevada, among other assets.
Fronteer has total attributable measured and indicated gold resources of 4.2 million ounces and inferred resources of up to 1.7 million ounces at Long Canyon, Northumberland and Sandman.
Pilot Gold will own a portfolio of Fronteer Gold’s exploration properties in Nevada, Turkey, and Peru and will be capitalized at closing with $10 million of cash.
If the transaction is approved, Fronteer shareholders will hold 80.1% of Pilot Gold with Newmont holding the remaining 19.9%.
Mark O’Dea, Fronteer’s president and chief executive, noted that the new company would have “sufficient financial resources to immediately undertake active exploration programs.”
Newmont operates six open-pit mines, five underground mines, and nine process facilities, in Nevada. Last year its operations in the state produced 1.7 million attributable gold ounces, about 32% of the company’s total attributable gold production.
This year Newmont has an exploration and development budget for near-mine activities in Nevada of roughly $285 million.
Fronteer’s board of directors has unanimously approved the deal and shareholders in the company are expected to vote on the proposed transaction in early April.
A break-fee of $85 million has been written into the deal.
Dear Northern Miner and stockholders of Frontier Gold,
Frontier Gold (FRG) is worth considerably MORE than $14 and change that is being offered by Newmont Mining. Frontier has a book value of proven, indicated and inferred resources (based on near term exploration which will indicate reserves of closer to 8,000,000 to 10,000,000 oz. of gold by 2013).
Newmont Mining is “stealing” Frontier with such an extremely low offer.
The “real value” of Frontier Gold is ABOVE $20 per share.
Hopefully, Frontier Gold Stockholders will reject this offer in April.
Better for Frontier Gold Stockholders would be a “higher offer from Barrick, GoldCorp OR Agnico-Eagle Mines. Agnico already indirectly owns approximately 5% of Frontier Gold. Furthermore, BHP always knows a good deal when it sees one and may also reevaluate buying Frontier.
Do the math: With gold at $1350 today (will it stay at this price IF the Egyptian Revolution is successful? Hardly: try a minimum price above $1400).
The best solution for Frontier Gold stockholders (NOT the board of directors) is to HOLD OUT FOR A HIGHER PRICE PRIOR TO EARLY APRIL, 2011 AND VOTE AGAINST THE SALE TO NEWMONT.
Sincerely yours,
Rudy Bauss/Feb. 3, 2011/stockholder in FRG/Austin, Texas/10:03 pm CT/20 F or -5 C/too cold for Austin, Texas.
YES….Newmont is getting Fronteer at a bargain price. Hopefully shareholders (including myself) will REJECT the Newmont $14 offer !!!!