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Newmont getting 'lots' of calls about merger-related asset sale

Newmont Mining Corp. offered few details about plans to divest between US$1 billion and US$1.5 billion in assets over the next two years after completing a proposed merger with Goldcorp Inc., but Newmont CEO Gary Goldberg said during a Jan. 14 conference call that potential buyers are already making inquiries.

The US$10 billion deal, set to create the industry's top gold-producing company, will trigger asset sales of less profitable operations while Newmont seeks to maintain annual gold production of between 6 million and 7 million ounces.

Goldberg reiterated Newmont's position that it would target a minimum 15% internal rate of return and said to "stay tuned" as the company looks at value and risk in the combined project portfolio.

Potential buyers are already knocking as Newmont received "lots of inbound calls today" about potential asset sales, Goldberg said.

Another big deal

Goldberg described the planned merger as a "unique" opportunity that came about in part because of previous partnerships with Goldcorp.

Goldcorp may also have been open to the talks as it reportedly sought mergers in recent months that included discussions with Australia-listed Newcrest Mining Ltd. Goldcorp President and CEO David Garofalo declined to comment on media reports about the rumored talks.

The merger comes on the back of another sizable deal in the gold sector: the US$18.3 billion tie up between Barrick Gold Corp. and Randgold Resources Ltd.

In the Goldcorp-Newmont merger, some saw a loss for Canada and a sign of trouble among larger producers. "This deal has no mega-merger excitement," Franco-Nevada Corp. CEO David Harquail said. "Instead, it feels more like a capitulation."

He said it was "tough" to see the loss of another Canadian head office. Newmont's head office is based in Denver, although the company has plans to expand a regional office in Vancouver through the merger.

In the combination, analyst and mining investor Brent Cook of Exploration Insights also saw failure on the exploration front.

"Besides the obvious excitement this will instill in the sell-side analysts for who is 'next to go,' the acquisition demonstrates the inability of the largest gold producers to maintain production levels through greenfields and brownfields success," Cook said. He also noted that Goldcorp shares have been trading near multiyear lows.

Junior opportunity?

The asset selloff may boost opportunities for juniors and smaller gold producers that could pick up Newmont's unwanted mines and development projects. "They will sell a lot of assets," Haywood Securities analyst Kerry Smith said.

IDM Mining Ltd. President and CEO Rob McLeod took a similar view. "The planned divestitures will result in a new crop of junior to midtier producers," he said.

Speaking to the deal more broadly, Smith said the valuation driving it looked decent. He noted, however, that Newmont will face higher capital expenditures in trying to maintain production at between 6 million and 7 million ounces.

Goldberg said higher production, coming from the sector's biggest gold reserve base, would be sustainable for years to come. "This is a deal we want to do, not a deal we have to do," Goldberg said during the conference call with analysts. Newmont did not take media questions during the call.