Newmont Mining Discovers Asset Optimization Is Worth the Effort

(Continued from Prior Part)

Portfolio rationalization has been the theme in the gold sector this year. In May 2015, Barrick Gold (ABX) sold its Cowal mine to Evolution Mining and a 50% stake in its Porgera joint venture to Chinese company Zijin Mining Group. Goldcorp (GG), meanwhile, sold its Wharf mine in South Dakota to Coeur Mining (CDE) in 2015.

Newmont Mining (NEM) has generated close to $1.5 billion via asset sales over the last two years. The company also lowered its all-in sustaining costs by 18% and its net debt by $1.4 billion in the first quarter of 2015, compared to the previous year.

The Market Vectors Gold Miners ETF (GDX) has 7.3% exposure to Goldcorp, its largest holding. The SPDR Gold Trust (GLD) gives exposure to spot gold prices.

In keeping with its asset rationalization strategy, Newmont also sold its interest in the Waihi gold mine in New Zealand to OceanaGold in April 2015. The deal is expected to close in Q315. OceanaGold already has some operations in New Zealand, so Waihi is a strategic fit for its portfolio.

The above graph illustrates Newmont’s strategy with respect to the disposal of its non-core assets, including Midas, Jundee, and La Herradura.

The sale terms include cash proceeds of $101 million, a contingent payment of $5 million—based on production targets —and a 1% net smelter royalty on a recent discovery north of Waihi’s current operations.

Waihi is located approximately 150 kilometers southeast of Auckland in New Zealand. Gold mining operations in this area started in 1878. It was acquired by Newmont in 2002 during its merger with Normandy.

This appears to be a good deal for Newmont, since it rationalizes a high-cost, non-core asset, in line with Newmont’s strategy. This will, however, strike off close to 130,000 ounces of gold from Newmont’s annual production total.

In the next part of our series, we’ll see if Newmont’s pipeline of organic projects could, along with the Cripple Creek & Victor acquisition, offset this decline in production.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Newmont Mining Asset Optimization Efforts Encourage Analysts
• Part 2 - Newmont Mining Acquires Cripple Creek from AngloGold
• Part 3 - Newmont Mining’s Acquisition Makes Strategic Sense