Newmont Mining Corporation (NEM)’s subsidiary, Newmont Indonesia Limited together with Nusa Tenggara Mining Corporation (an affiliate of Japan’s Sumitomo Corporation), has completed the sale of 7% of PT Newmont Nusa Tenggara for the 2008 divestiture to PT Multi Daerah Bersaing, a consortium comprised of regional and local governments near the Batu Hijau mine, and PT Multicapital (a private company). With this divesture, Newmont ended the dispute with the Indonesian government over selling its shares as required under the contract to operate in the country.
Newmont had however agreed to sell its 14% stake of PT Newmont Nusa Tenggara, the Indonesian gold mine, to PT Multi Daerah Bersaing for about $494 million. The settlement of the remaining 7% stake sale is still subject to approval from PT Newmont Nusa Tenggara’s shareholders meeting, which may be held next month.
Upon completion of this sale, Newmont received about $139 million in cash, reflecting its 56.25% portion of the $247 million sale price. This is in addition to $220 million in proceeds for Newmont from the 10% PT Newmont Nusa Tenggara divestiture share sale concluded on Nov 16, 2009. This share transfer results in a pre-tax gain of about $70 million. With the close of the 2008 divestiture share transfer, Newmont’s ownership in the Batu Hijau mine has been reduced from 39.4% to 35.4%.
With the latest stake purchase, the consortium − PT Multi Daerah Bersaing, which is linked to the Bakrie family’s Bumi Resources − will have a 24% stake in the venture and will have the right to place its representatives on the board of directors. Newmont stated that the transfer would result in a pre-tax gain of about $100 million. The company’s ownership in Batu Hijau’s proven and probable equity reserves has been reduced from 45% to about 39%. Newmont Nusa Tenggara runs the Batu Hijau copper and gold mine on Sumbawa island.
Newmont Mining is one of the world’s largest un-hedged gold producers. Gold prices are high due to strong demand, U.S. trade/budget/currency issues and global instability. We expect Newmont’s gold sales to rise due to the start of the recently acquired Boddington mining facility in Australia and increased gold sales at the lower-cost Peruvian and Indonesian operations. We reaffirm our Neutral recommendation on the stock.
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