Newmont Mining Corporation (NEM) announced yesterday that its subsidiaries, Newmont Indonesia Limited and NVL USA Limited have entered into a loan transaction with P.T. Pukuafu Indah, an unrelated Indonesian company and 20% owner of PT Newmont Nusa Tenggara. P.T. Pukuafu Indah has agreed to pledge its 20% interest in Newmont Nusa Tenggara to NVL as collateral for the loan along with its own shares.
According to the terms of the agreement, P.T. Pukuafu has utilized $287 million of the total proceeds to repay outstanding debt. NVL also may fund certain additional advances as required, to pay off other loan held by P.T. Pukuafu. The loan is scheduled to mature on Dec 31, 2019. Repayment of the loan prior to maturity will be made from dividends attributable to the pledged shares and other payments until the loan balance is repaid.
Denver, Colorado-based Newmont Mining Corporation is one of the world’s largest unhedged producers of gold, with several active mines in Nevada, Peru, Australia/New Zealand, Indonesia and Ghana. Newmont, through a subsidiary, currently holds a 35.44% interest in Newmont Nusa, which owns the Batu Hijau copper and gold mine on the island of Sumbawa in Indonesia.
Demand for gold is improving. 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. Earnings in the third quarter of 2009 were ahead of the Zacks Consensus Estimate. However, declining ore grades are raising mining costs, prompting Newmont to reduce capital expenditure. A highly leveraged balance sheet is also a major concern. We reaffirm our Neutral recommendation.
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