May 14 2014, 12:52pm CDT | by Forbes
Newmont Mining has announced the sale of its Jundee underground gold mine in Australia to Northern Star Resources Limited for total proceeds of $91 million. The company said in a statement that it had entered into a binding agreement with Northern Star to sell the Jundee underground mine for cash proceeds of $77 million and a further payment of $14 million for working capital. Northern Star is acquiring all of Jundee’s assets and liabilities, including all environmental and employee obligations. The sale is expected to be completed in July. Completion of the sale is contingent upon Northern Star securing financing and is subject to a third party’s right of refusal.
The transaction is consistent with Newmont’s strategy to optimize its portfolio by selling off its high cost mines and focusing on lower cost and longer life operations.
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The Jundee Mine
The Jundee mine is located about 435 miles northeast of Perth in Western Australia. It is 100% owned by Newmont. Jundee represents a fairly minuscule portion of Newmont’s overall gold mining operations. The mine produced 279,000 ounces of gold out of a total attributable production of 5.065 million ounces for Newmont in 2013. In terms of gold reserves, Jundee accounted for only 410,000 ounces in proven and probable reserves, out of a total of 88.35 million ounces in proven and probable reserves attributable to Newmont in 2013.
The Jundee mine, being a part of Newmont’s Australia and New Zealand operations, is a fairly high cost asset. The All In Sustaining Cost metric for the Australia and New Zealand operations stood at $1,176 per ounce as compared to $1,105 per ounce for Newmont’s overall gold mining operations in 2013. The AISC metric captures all of the expenditures incurred to discover, develop and sustain production. AISC includes costs applicable to sales, remediation costs, general and administrative costs, advanced projects and exploration expenses, treatment and refining costs, sustaining capital expenditure and other miscellaneous expenses. This metric helps investors gauge the company’s performance better.
Rationale For The Sale
The sale is part of Newmont’s overall strategy to optimize its portfolio by divesting non-core assets. It follows stake sales in Canadian Oil Sands, the Midas underground mine in Nevada and Paladin Energy Limited. Combined with the Jundee transaction, the total proceeds from these stake sales is around $800 million.
Newmont is cutting costs, divesting high cost and non-core assets in order to better cope with an environment characterized by low gold prices, which have corrected significantly over the course of last year. These have been reacting to cues regarding Quantitative Easing tapering by the Federal Reserve. London PM Fix gold prices have fallen from average levels of $1,650 per ounce in Q1 2013 to $1,300 per ounce in Q1 2014. Going forward, the expected strengthening of the U.S. economy is likely to result in further QE tapering and continued pressure on gold prices.
The company management has already stated that Newmont will focus on lower cost and longer life operations. Given the bleak gold price environment, there may be more such divestments in the future.
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