Goldcorp's Porcupine mine in northern Ontario.
Newmont Mining Corp.’s acquisition of Goldcorp Inc. will likely result in the sale of a number of the latter’s Canadian mines as the combined company focuses on its best-performing and lowest-cost operations.
On Monday, the Denver-based gold major announced it had reached a friendly deal to acquire Vancouver-based Goldcorp for US$10-billion in a mostly share transaction that will see Newmont’s mine portfolio jump to 20 properties across four continents.
It was the second major deal in the Canadian gold sector in the past few months, with Toronto’s Barrick Gold Corp. recently closing its US$6-billion acquisition of Randgold Resources Ltd.
Newmont chief executive Gary Goldberg said in a conference call on Monday with analysts that the company plans to sell as much as US$1.5-billion in assets over the next two years as it studies its portfolio “on a value and risk basis.” Mr. Goldberg did not specify which mines would be going on the block, but he indicated that potential buyers were already interested, saying he had “a lot of inbound calls from different folks.”
In a note to clients, RBC Dominion Securities Inc. analyst Stephen Walker said Newmont’s asset sales could be a mix of the combined company’s higher-cost properties or those with lower reserves, including Goldcorp’s Red Lake, Musselwhite and Porcupine mines, all of which are in Ontario.
Red Lake was Goldcorp’s original underground mine and was developed under founder Robert McEwen, who started the company in 1994. But a few decades later, its production has fallen significantly and it is now one of the company’s highest-cost operations, with all-in sustaining costs (AISC) of US$1,090 an ounce in the past quarter. Musselwhite has disappointed lately with both falling production and rising costs as Goldcorp struggled with an expansion aimed at making the mine more productive. Porcupine is another of Goldcorp’s smaller and higher-cost mines, with AISC of US$996 an ounce in the last quarter.
What is unclear, though, is whether there will be viable buyers for some of these lower-tier, higher-cost mines in Canada. Toronto-based Detour Gold Corp.’s high-cost Detour Lake mine in Northern Ontario has been for sale since last summer, but no deals have emerged.
“It’s tough," Josh Wolfson, an analyst with Desjardins Securities Inc., said in an interview. "Companies ultimately want cash, and there aren’t a lot of companies with cash.”
A less appealing but possible solution would be selling some of the assets for a mix of cash and equity, which is something Goldcorp has done in the past.
Two years ago, it sold its Los Filos mine in Mexico to Leagold Mining Corp. for US$350-million – US$279-million in cash and US$71-million in common shares of Leagold.
Mr. Wolfson also thinks Newmont may unload Goldcorp’s 40-per-cent stake in Pueblo Viejo, a giant open-pit mine in the Dominican Republic. Even though Pueblo Viejo is considered to be a high-quality operation and is one of the biggest gold mines in the world by production, it will soon be in need of a significant capital investment to prolong its life cycle. The timing therefore may be right for Newmont to sell its stake, Mr. Wolfson said. The obvious buyer would be Barrick, which is both the operator of the mine and the owner of the remaining 60-per-cent stake.
Other properties that Newmont may sell, according to RBC’s Mr. Walker, are its two West African gold mines, Ahafo and Akyem in Ghana, which he said “stand out geographically" in a portfolio that is heavily weighed toward Australia and the Americas.
Niall McGee