The Gold Purchase Heard 'Round the World

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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.

Further Foolishness:

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at Motley Fool CAPS lists 32 companies, and you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Buenaventura, Kinross Gold, and Yamana Gold. The Motley Fool has a disclosure policy.

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  • Report this Comment On January 30, 2009, at 7:15 PM, kangta13 wrote:

    Factual information about these gold companies would be better suited for these articles.. i do own yamana, and i would be glad for a buyout.. but it be nice to see something else besides speculation on buyouts over and over, when you know and i know no ones said anything to you.. stop your pump.. and post something useful.. sorry that's my feelings on the subject..

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