Newmont Wins Santa Fe Pacific Gold Deal Hostile Bid Wins Competition For Hecla Mining Partner, But Outcome Won’t Affect Hecla Agreements
Three months after launching a hostile bid for Santa Fe Pacific Gold, Newmont Mining has won a $2.5 billion deal to buy its competitor and become North America’s biggest gold producer.
The combination, which comes at a somewhat steeper price than Newmont’s most recent offer, breaks up a friendly merger between Santa Fe and Homestake Mining Co. Santa Fe will become a unit of Newmont once the deal, announced Monday, is completed.
“The auction got too expensive,” said Homestake president Jack Thompson. Homestake will receive $65 million to terminate its merger agreement with Santa Fe Pacific.
Strategically, the purchase will push Newmont Mining Corp. past Barrick Gold Corp. of Toronto to become the region’s leading gold producer.
“Santa Fe probably has quite a bit of gold production ahead of it, which is why it was viewed as such a prize by both Homestake and Newmont,” said John Lutley, president of the Gold Institute, a Washington, D.C.-based trade group.
He said the deal comes amid a growing number of mergers in the gold industry, driven by the increasing size of mining projects. Larger companies have an easier time financing such deals.
Further, Newmont said the combination is expected to bring cost savings of $70 million to $80 million a year. Ronald C. Cambre, Newmont’s chairman and chief executive, said the deal will create a gold producer with 55 million ounces of proven and probable reserves.
Santa Fe has operating agreements with Coeur d’Alene’s Hecla Mining Co. Santa Fe owns half of the Rosebud project developed by Hecla and has been exploring for gold at Hecla’s Republic mine in Washington. Hecla officials say the agreements won’t be affected by any merger.
The merger follows Newmont’s first hostile bid for Santa Fe Pacific Gold Corp. on Dec. 5, and a sweetened offer on Jan. 7. After Newmont’s first bid, Homestake announced its deal to combine with Santa Fe.
Denver-based Newmont operates through its subsidiary, Newmont Gold Co. Its mines are near Carlin, Nev. Santa Fe Pacific Gold, based in Albuquerque, explores for and develops gold properties, processes gold ores and owns three Nevada mines.
Terms of the deal call for Santa Fe shareholders to receive 0.43 share of Newmont common stock for each share they own. Based on Newmont’s closing price Friday, that comes to $18.97 a share, or $2.5 billion.
Santa Fe shares rose on the news Monday, gaining 75 cents each to $18.12-1/2 in afternoon trading on the New York Stock Exchange. Newmont lost $1.12-1/2 to $43 on the NYSE, where Homestake was ahead 87-1/2 cents at $15.87-1/2.
Both companies expect the deal to be completed in this year’s second quarter, subject to shareholder approval.
Newmont’s agreement is 8 percent richer than its previous offer, which was 0.40 of its shares for each Santa Fe share. Patrick M. James, chairman and chief executive of Santa Fe, said Homestake and Newmont met with Santa Fe Pacific Gold’s board on Saturday before making a final decision.
Ken Pavlich, the general manager of Santa Fe’s Lone Tree Complex mines in northern Nevada, said the 560 employees there have been expecting a new owner “sooner or later.”
“Everyone is anxious to see what kind of changes there are going to be, although we’re not expecting anything major,” he said.