Oct. 9 (Bloomberg) -- Newmont Mining Corp., the world's second-largest gold producer, agreed to buy Miramar Mining Corp. for about C$1.5 billion ($1.52 billion) in cash to replace dwindling reserves of the precious metal.

The offer of C$6.25 per share, 20 percent higher than the Oct. 5 closing price, has the support of Miramar's board, Denver-based Newmont said today in a statement. JPMorgan Chase & Co. and Citigroup Inc. have committed to underwrite a $1.3 billion loan to help finance the acquisition, Newmont said.

Newmont Chief Executive Officer Richard T. O'Brien, like his counterparts at Barrick Gold Corp. and Gold Fields Ltd., is buying rivals to bolster reserves and increase production to capitalize on the highest gold prices since 1981. Bullion has gained for six straight years as global output fell and investors bought more of the metal as an alternative to a declining dollar.

``It's a great deal for Newmont,'' said Joe Foster, a fund manager at New York-based Van Eck Associates Corp., which owned about 3.3 percent of Miramar as of June 30. ``I'm not happy with the price. I did my valuation, and they have a great asset. It's world class.''

Miramar, based in North Vancouver, British Columbia, surged C$1.09, or 21 percent, to C$6.28 at 4:10 p.m. in Toronto Stock Exchange trading. Of the 10 analysts who rate the company's shares, five advise clients to buy the stock, two recommend holding it and three say to sell. Newmont gained $1.19, or 2.7 percent, to $46.02 in New York.

Newmont Holdings

Newmont already owns 8.4 percent of Miramar and could increase the holdings to 15 percent by exercising warrants, Newmont spokesman Omar Jabara said in an interview from Denver. Miramar may be liable for a breakup fee of C$41.4 million if the acquisition doesn't succeed, he said.

``Miramar has one of the very few major developable resources in the world today, and it is highly logical for Newmont and others to be interested in it,'' George Ireland, president of Geologic Resource Partners LLC, said in an interview from Boston. ``It is an excellent opening offer, but we would fully expect it to be increased before the deal is over.''

The acquisition will give Newmont control of Miramar's 10.7 million-ounce Hope Bay gold resource in Canada's Nunavut region, about 160 kilometers (99.4 miles) north of the Arctic Circle. Miramar planned to start construction this year and have annual output of as much as 600,000 ounces of gold by 2012, according to a presentation on its Web site.

Rival Bids

The size of the offer and the breakup fee make the bid difficult to challenge, said Thomas Winmill, president of Midas Management Corp., which owned about 1.4 million Miramar shares as of June 30.

``For another bid to come is possible, but they'd have to be pretty hungry, and there would have to be a lot of cash on the table in addition to shares,'' Winmill said.

Newmont will review plans for Hope Bay's development, Jabara said.

``We're looking to develop a plan that will responsibly maximize Hope Bay's full potential,'' Jabara said. ``It's one of the largest undeveloped gold deposits in the world.''

Newmont said on Sept. 26 that costs this year will exceed an earlier target of $400 an ounce and warned it may have difficulty increasing reserves each year. The company had gold reserves of 93.9 million ounces and output of 5.9 million ounces in 2006.

O'Brien, who replaced Wayne Murdy as CEO in July, said that Newmont will no longer ignore smaller acquisitions and will buy deposits that can produce as few as 150,000 ounces a year to lower its average production costs and expand its reserves.

Miramar Support

Bank of Montreal and Paradigm Capital Inc. provided an opinion to Miramar that the offer is fair. Miramar's directors and senior managers will tender their shares, Newmont said.

``Newmont's offer takes into account the value of the existing resources at Hope Bay along with the significant upside potential,'' Miramar CEO Tony Walsh said in the statement. ``This is a world class project, and its value will continue to be realized under the direction of Newmont.''

Newmont is being advised by Genuity Capital Markets, JPMorgan and Citigroup, with legal counsel provided by Wachtell, Lipton, Rosen & Katz and Goodmans LLP.

BMO Capital Markets, Gowling Lafleur Henderson LLP and Dorsey & Whitney LLP are advising Miramar.

To contact the reporter on this story: Stewart Bailey in New York at sbailey7@bloomberg.net.

Last Updated: October 9, 2007 16:18 EDT