Vancouver’s mining community saw its first major deal of the year Thursday when U.S. giant Newmont Mining (NYSE:NEM) announced a deal to buy local yellow metal explorer Fronteer Gold (TSX:FRG).
The takeover is valued at $2.3 billion and would give Newmont access to Fronteer’s highly prospective Long Canyon, Sandman and Northumberland projects in Nevada.
The transaction also allows Newmont, which was founded in 1921 and has more than 35,000 employees, to strengthen its land position in the silver state, which is widely considered the company’s backyard.
“This combination of assets will allow Newmont to leverage our expertise and extensive infrastructure in the region,” commented Richard O’Brien, Newmont’s president and CEO. “Based on the work conducted to date by Fronteer Gold, as well as our own due diligence, we believe that Long Canyon holds the potential to grow beyond three to four times Fronteer Gold’s current stated resource estimate.”
Under the deal, Fronteer shareholders would receive $14 in cash and one share in a new company for each common share they own.
The cash consideration represents a 37% premium to Fronteer’s closing price on February 2.
The new company to be created is being called Pilot Gold, and it will include a variety of Fronteer’s other exploration properties in Nevada, Turkey and Peru.
Fronteer shareholders will own 80.1% of Pilot while Newmont will hold the rest, and Pilot will hit the ground running with $10 million in cash.
“Newmont shares our view that Long Canyon, our flagship project, is a ‘best-in-class’ asset with excellent production attributes and significant growth potential,” said Fronteer president and CEO Mark O’Dea.
“Importantly, this transaction continues to expose Fronteer Gold shareholders to our ongoing exploration and development success through Pilot Gold.”
O’Dea added that Pilot will have an experienced board of directors and management team, plus enough cash in the bank to immediately begin exploration programs in Turkey and Nevada.
In December, Fronteer sold its uranium assets in Labrador for $261 million (see “Fronteer to sell uranium assets for $261 million” – BIV Business Today, December 17, 2010 .)
Fronteer said that deal would allow the company to place more focus on its Nevada gold projects, notably Long Canyon.
At press time, Fronteer’s shares had jumped 39% to $14.25.