Newmont-Miramar deal offers Nunavut prize

If Newmont Mining Corp., the world's second largest gold producer, succeeds in its $1.52 billion takeover of Vancouver, B.C.-based Miramar Mining Corp., the major will gain control of one of the largest undeveloped gold projects in North America.

Miramar owns the Hope Bay Project in Nunavut Territory, which has a 10.7 million-ounce gold resource about 99 miles north of the Arctic Circle and about 434 miles northeast of Yellowknife, NWT. Miramar planned to start construction this year and achieve annual output up to 600,000 ounces of gold by 2012, according to a presentation on the company's Web site.

Denver-based Newmont, which already owns 8.4 percent of Miramar and could increase its holdings to 15 percent by exercising warrants, announced a definitive agreement Oct. 9 to purchase the junior mining company for $6.25 a share. The offer, unanimously approved by Miramar's board of directors, represents a 29 percent premium over the company's market price Oct. 5.

Analysts immediately hailed the transaction as a very good deal for gold-hungry Newmont but also speculated that the deal may be too much of a bargain. However, the size of the transaction and a possible $41.4 million breakup fee that Miramar would have to pay Newmont if the deal fails makes it difficult to challenge, they say.

Newmont impressed by Hope Bay

Newmont's Richard O'Brien, who took over as president and CEO in July, said the company's initial investment in Miramar in 2005 signaled a potential strategic opportunity offered by the Hope Bay Project as part of the major's broader exploration and growth portfolio.

"We have been impressed with the progress of the project since that time, and believe that, as a result of its scale, the true potential of the project can best be realized with the additional expertise and resources of a global gold company like Newmont," O'Brien said in announcing the deal.

Newmont, like Barrick Gold Corp. and Gold Fields Ltd., is buying a rival to bolster reserves and increase production to capitalize on the highest gold prices since 1981, analysts say. 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.

O'Brien said strategic benefits of the purchase include opportunities for Newmont to establish a new, core mining district in Nunavut; to focus on a long-term deposit with competitive operating costs that is one of the top known, undeveloped gold deposits globally; and to control and explore a roughly 50-mile-by-12.4-mile "greenstone belt" with substantial exploration potential located in a AAA-rated country.

Greenstone belts are zones of variably metamorphosed mafic to ultramafic volcanic sequences with associated sedimentary rocks often colored green by chlorite, hornblende, or epidote and containing ore deposits of gold, silver, copper, zinc and lead.

Miramar CEO endorses deal

Miramar President and CEO Tony Walsh said Newmont's offer takes into account the value of existing resources at Hope Bay, which is considered the most significant gold discovery in Canada since 1982. It also factors in the significant upside potential of the Nunavut project, he said.

"I firmly believe this is a world-class project, and that its value will continue to be realized under the direction of Newmont, a world class gold mining company," Walsh added.

Miramar has been exploring the Hope Bay belt since 1999 and has suggested that gold resource identified to date may be just the beginning of a new gold camp that could see Hope Bay become the next great mining district in Canada.

Access to the project site from the Arctic Ocean and the Mackenzie River is available for 12 weeks of the year, July through September, giving Miramar the ability to ship in equipment and bulk supplies at about a 20 percent cost advantage over other mining operations in the territory.

Miramar officials said barges recently delivered equipment and supplies to the site, and the company plans to begin construction later this year on an underground Doris North mine, the first of three sites identified for production.

Miramar has construction permits and soon will have operating permits. The company recently won approval for the Hope Bay project from the Nunavut Water Board, a key hurdle before construction can begin.