Newmont Mining Corporation (NEM), through its wholly owned subsidiary Newmont Mining Corporation of Canada Limited, has acquired a 10.18% control in Eurasian Minerals Inc. Eurasian Minerals is a Vancouver, British Columbia-based junior exploration company.
Newmont has acquired 2 million shares of Eurasian Minerals Inc. by way of private placement at a price of $2.08 (C$2.20) per share. The total transaction value is $4.2 million (C$4.4 million). The shares are subject to restrictions on resale until October 8, 2010.
Newmont has acquired the shares of Eurasian for investment purposes. Depending on market conditions, it might further increase or decrease its ownership of Eurasian.
Denver, Colorado-based Newmont Mining Corporation is one of the world’s largest producers of gold, with several active mines in Australia/New Zealand, Ghana, Indonesia and Peru. Newmont is benefiting from soaring gold prices. We expect Newmont’s gold sales to rise due to the commencement of the recently acquired Boddington mine in Australia and increased gold sales at the lower-cost Peruvian and Indonesian operations.
We are increasingly optimistic on Newmont’s liquidity. The company generated operating cash flows of $715 million in the last reported quarter. Cash and cash equivalents were strong at $3.4 billion, with a debt-to-capital ratio of around 25% as of March 31, 2010.
Yet, we are apprehensive of Newmont’s high mining costs, which are increasing due to declining grades, increased royalty payments, equipment maintenance, waste removal and labor and fuel costs. Gold producers including Newmont extract ores with lower grades that are often accompanied by higher separation and extraction costs. The company’s non-mining costs are also increasing due to legal expenses for environmental degradation lawsuits and government claims.
We reaffirm our Neutral recommendation on Newmont.
Read the full analyst report on “NEM”
Zacks Investment Research
