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With a vote of confidence for gold heard 'round the mining world, a leading gold miner dug deep into its pockets this week to consolidate ownership of the next big thing Down Under -- and I'm not talking about falsetto-singing disco trios or funky sandwich spreads.
Marking a bold reversal from the prevailing conservatism within the industry, Newmont Mining (NYSE: NEM ) announced a $1 billion deal this week to purchase AngloGold Ashanti (NYSE: AU ) 's 33.33% stake in the Boddington Mine joint venture in Western Australia. Newmont regards Boddington as a core asset in its development pipeline. After ramping up from a production start near mid-2009, the mine is slated to produce 1 million ounces of gold per year at a low cost of about $300 per ounce.
To fund the $1 billion purchase, along with increased capital expenditures, Newmont turned to the market with an issuance of 30 million shares priced at $37, plus a $450 million offering of senior notes carrying a 3% yield. Newmont's willingness to strike a deal of this magnitude in the present climate, along with the achievement of low-cost financing, comprises another rung in the ladder of gold's decoupling process from non-monetary commodities. While many base metal miners like Rio Tinto (NYSE: RTP ) continue to operate at reduced capacity while awaiting a rebound in prices, it's now clear the gold miners are off to the races.
With this deal as the ice-breaker, I expect to see a major resurgence in consolidation within the gold industry. Many gold miners, including Yamana Gold (NYSE: AUY ) , recently shelved portions of their long-term development pipelines amid liquidity concerns. As gold continues to show strength and cash flows refill miners' coffers, acquisitions may become a key means of filling in those reduced project pipelines. Kinross Gold (NYSE: KGC ) recently completed a share offering of its own, leading some to speculate that the company is seeking yet another acquisition. With no debt, Goldcorp (NYSE: GG ) could also be in a position to snatch up a junior miner or two.
Newmont recorded production of 5.2 million ounces gold at an average cost of $440 per ounce in 2008. The Yanacocha joint venture with Buenaventura (NYSE: BVN ) contributed to a solid year for Newmont after completing a mill expansion. With gold looking strong and the miners beginning to thaw, 2009 could be a big year indeed for Newmont Mining and its gilded competitors.