VANCOUVER — It’s no secret that Newmont Mining (NYSE: NEM) is looking to monetize its non-core assets, and that process has taken another step with the all-cash sale of the company’s Jundee underground gold mine, 45 km northeast of the town of Wiluna in Western Australia.
The buyer is Perth-based Northern Star Resources (ASX: NST), which has emerged as a player in Western Australia over the past six months, with a trio of acquisitions from major North American gold producers.
To start 2014 the company forked over US$100 million in cash to Barrick Gold (TSX: ABX; NYSE: ABX) for the Kanowna and Plutonic mines, and now it will give Newmont US$81 million to pick up Jundee. Northern Star will pay US$77 million in cash at closing, as well as another US$14-million payment for working capital.
The Jundee concessions cover 420 sq. km in the Northern Yandal Archean greenstone belt. The project hosts lode-gold mineralization that is controlled by a brittle fracture system. Mineralization is generally narrow, highly discontinuous and nuggety, and displays multiple orientations, with variable dips and dip directions.
Production at Jundee started in 1995 from a complex of open pits before the operation opened its underground component in 1997. Open-pit mining ceased in 2012.
Under the agreement, all existing fixed plant and on-site equipment owned by Newmont will be transferred to Northern Star, which will offer most of Jundee’s “non-contract staff” continued employment.
Jundee produced 279,000 oz. gold in 2013 at all-in sustaining costs of US$870 per oz., and the mine is expected to crank out 200,000 oz. gold annually over the next two years. Jundee’s mine life is estimated at between two and three years based on proven and probable reserves of 3 million tonnes grading 4.3 grams gold per tonne for 411,000 contained oz.
Measured resources tack on 1.6 million tonnes grading 2.2 grams gold, while indicated resources add 1.4 million tonnes of 6.6 grams gold, and inferred resources total 3.6 million tonnes of 4.4 grams gold.
The acquisition positions Northern Star as the second-largest Australian gold producer behind Newcrest Mining (TSX: NM; ASX: NCM; US-OTC: NCMGY), with its production estimated to jump 57% to 550,000 oz. by 2015.
The company received credit approval from Investec Bank Group for a US$94-million revolving debt facility to help fund the transaction. Northern Star estimates it will have US$37 million in cash when it closes, following a US$65.5-million drawdown on the facility.
BMO Capital Markets analyst David Haughton — who has a “market perform” stock rating on Newmont, along with a US$31.50-per-share price target — wrote on May 13 that the purchase price is “broadly in line” with BMO Research’s US$83-million net present value (NPV) on Jundee at a 10% discount rate. Haughton noted that reserves could support a three-year mine life at an average 180,000 oz. gold produced annually.
“The transaction is consistent with [Newmont’s] non-core divestiture and builds on other non-core asset sales, including its stake in Canadian Oil Sands (TSX: COS; US-OTC: COSWF), the Midas underground mine in Nevada and equity interest in Paladin Energy (TSX: PDN; ASX: PDN),” Haughton continued. Newmont estimates that non-core sales to date — including Jundee — will result in cash proceeds of US$800 million.
Newmont was up US17¢ after news of the sale en route to a US$24.68-per-share close at press time. The company has 499 million shares outstanding for a US$12.4-billion market capitalization.
Northern Star shares rose 8% in Sydney after the company announcing its acquisition, closing at A$1.20 per share.
Shares has traded within a 52-week range of A53¢ and A$1.34, and has been up 52% over the past six months. Northern Star has 428 million shares outstanding for a A$514-million market capitalization.
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