This post was written by Minyanville contributor Lance Lewis.
Just after the close yesterday, Newmont Mining (NYSE: NEM) guided up 2009 production and guided 2009 cash costs lower. NEM also announced that it would be purchasing the remaining interest in its majority owned Boddington Mine from Anglogold Ashanti (NYSE: AU) (which equates to 6.6 mln reserve ounces). That's an increase of 8 percent in NEM's Proven & Probable (P&P) reserves at a price tag of $1.2 bln, which will be raised via an equity offering of 19 mln shares.
Based on NEM's 441 mln shares outstanding, we're looking at dilution of just over 4 percent. Thus, in theory, the deal is not even dilutive, given the 8 percent increase in P&P reserves that the company is acquiring with only a 4 percent dilution in equity. Based on what I have seen so far, this looks like a spectacular deal for NEM.
Consider that at this price tag, it means NEM paid $165 per reserve ounce for the remaining interest in Boddington, which is a pretty sweet deal for NEM considering that NEM estimates that cash costs will be around $300 an ounce at the project. This makes each additional reserve ounce worth about $400 at today's gold price of $900.
Additionally, while NEM's payment of $165 per reserve ounce is obviously not a huge premium to where many of the senior miners are trading, it may shine a light on the fact that many juniors and intermediates are trading well below that valuation, including Banro (NYSE: BAA), New Gold (NYSE: NGD), Minefinders (NYSE: MFN), Northgate Minerals (NYSE: NXG), and Golden Star Resources (NYSE: GSS) (just to name a few). In other words, if NEM is willing to pay cash for at such a valuation, shouldn't the market value other miners' reserves at similar valuations at minimum?
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