Newmont to Acquire Fronteer Gold - Analyst Blog

Shareholders of Vancouver-based Fronteer Gold Inc. (FRG) have approved the proposed buyout by Newmont Mining Corporation (NEM); casting 99.7% votes in favor of the deal.

The consideration of the deal is in cash and stock, valued at $2.3 billion and is expected to close by April 6, 2011, subject to the approval of the Canadian court.

According to the terms of the deal, Newmont has agreed to give Fronteer's shareholders $14.13 in cash and one share in a new company called Pilot Gold for each share they currently hold. The new company will own some of Fronteer's assets in Nevada, Turkey and Peru. Newmont and Fronteer will own 80.1% and 19.9%, respectively, in Pilot Gold following the buyout, which will have a capital of approximately $10.1 million.

Fronteer Gold Inc., based in Vancouver, British Columbia, currently owns as many as three projects in Nevada, which is close to Newmont's current operations. Among these, Long-Canyon mining project is in the nascent stage and is situated about 100 miles from Newmont's Nevada operations; the second one is in Northumberland, Nevada, and the third is a joint venture with Newmont named Sandman.

The most lucrative among the three is Long-Canyon, which is expected to create a new gold district, thus augmenting Newmont's already growing operations in North America. Newmont will also acquire a 100% ownership of the Sandman joint venture, which is also likely to strengthen its position in the state of Nevada. Sandman has the potential capacity to produce up to $1 million ounces of gold.

Newmont produced approximately 1.7 million gold ounces in 2010, which is a third of the company's global production. The company's operations in Nevada extend across more than 2 million acres and include six open-pit mines, five underground mines and nine processing facilities.

Newmont recently diverted its Gold and Copper reserves of Nusa Tenggara, its Indonesian unit, to five new Japanese smelters. This diversion was necessary due to the devastating March 11, 2011, earthquake and tsunami in Japan, which terminated the operations at Onahama.

We currently have a Zacks #3 Rank (short-term 'Hold recommendation) on the stock.

Denver, Colorado-based Newmont Mining Corporation is one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia/New Zealand, Indonesia and Ghana. The company faces stiff competition from Barrick Gold Corporation (ABX) and AngloGold Ashanti Ltd. (AU).