Newmont Mining Corp., the largest U.S. gold producer, agreed to buy Fronteer Gold Inc. for C$2.3 billion ($2.32 billion) to gain exploration and development projects in Nevada.
Newmont is paying C$14 a share, 37 percent more than the target company’s closing price in Toronto yesterday, Greenwood Village, Colorado-based Newmont said today in a statement. Newmont is buying Fronteer for three Nevada properties and will spin off the acquired company’s remaining 11 projects into a new company, Pilot Gold. Fronteer investors will get one Pilot share for each Fronteer share as part of the takeover.
“I’m supportive of the deal,” Jorge Beristain, a Greenwich, Connecticut-based analyst at Deutsche Bank AG who rates Newmont as “buy,” said today in a telephone interview. “It’s one of the best uses of cash for Newmont in the near term and is very complimentary to Newmont’s focus on Nevada.”
Fronteer gives Newmont control of the Long Canyon, Northumberland and Sandman projects in Nevada, which drilling and testing show may contain 4.2 million ounces of gold. Newmont said Long Canyon’s proximity to its existing assets in the state presents “significant” potential cost savings.
Newmont rose $1.68, or 3 percent, to $57.33 at 4:15 p.m. in New York Stock Exchange composite trading. Fronteer climbed C$4.07, or 40 percent, to C$14.32 on the Toronto Stock Exchange.
Gold for immediate delivery has increased 22 percent over the past year in London trading. The metal traded at a record $1,431.25 an ounce on Dec. 7.
Newmont is paying a 41 percent premium based on Fronteer’s average share price over the 20 days prior to the deal, according to Bloomberg data. There have been 321 gold-mining takeovers in the past 12 months with an average premium of 36 percent, according to data compiled by Bloomberg.
BMO Capital Markets, Goodmans LLP and Wachtell, Lipton, Rosen & Katz advised Newmont. RBC Capital Markets and Davies Ward Phillips & Vineberg LLP advised Fronteer.
Pilot, which will hold assets including Peruvian and Turkish mining properties, will be 80 percent-owned by Fronteer shareholders. The new company will be run by Fronteer’s existing management, Omar Jabara, a spokesman for Newmont, said in a telephone interview.
Fronteer’s 6.7 percent stake in Paladin Energy Ltd., an Australia-based uranium miner, will be held by Newmont, Jabara said. Newmont is bound to own the Paladin shares for at least four months under an agreement between Fronteer and Paladin, he said.