Deal to snatch gold mining crown eluding Newmont

The Super Pit some 600km east of Perth has produced 50 million ounces over 30 years and fully developed the cut will be 3.6 kilometers long, 1.6 kilometers wide and up to 650 meters deep. Image: Kalgoorlie Consolidated Gold Mines

For Barrick Gold, 2015 year was the last period of 6m-plus ounces of production which was already substantially down from its peak of 7.7 million ounces in 2010 and 2011.

The Toronto-based company increased its annual output forecast for 2016 to between 5.25 million and 5.55 million ounces when it released third quarter results this week.

Number two gold miner in terms of output, Newmont Mining, this week also had good news for investors, indicating attributable production could be as high as 5 million ounces for the full year.

Newmont’s been working the mine hard, adding 86,000 ounces of production during the first half of 2016, at the same making deep cuts to costs.

That puts Denver-based Newmont within striking distance of  Barrick which has been shedding assets at a clip in an effort to tackle its heavy debt load. Apart from offloading its stake in Tanzania’s Acacia Mining, the largest operation still on the block is Australia’s Kalgoorlie Consolidated Gold Mines.

With the release of third quarter results, Barrick President Kelvin Dushnisky said the process to sell Kalgoorlie is “robust” with “interest from inside and outside Australia.”

Newmont Mining owns the other half and Barrick handed over operational control of the the iconic mine called the Super Pit to Newmont in May last year.

Newmont would be the natural buyer and has expressed interest in the mine in the past where output could reach as much as 800,000 ounces this year.  The company sports one of the stronger balance sheets in the sector having embarked on a debt reduction program earlier than its rivals.

It’s been working the mine hard, adding 86,000 ounces of production during the first half of 2016 compared to the same period last year while at the same making deep cuts to costs.

Newmont’s chief executive officer Gary Goldberg said in a recent  interview with Bloomberg TV Canada that the two companies “are not misaligned in terms of where we see some of the value of the resource that’s there, but people have different assumptions on exchange rates, and gold price, those sorts of things.”

Newmont has first right of refusal on the stake sale, but Barrick could circumvent that by selling shares in Kalgoorlie’s holding company.  Valuation of Kalgoorlie is all over the place with analyst estimates varying between $400 million to about $1.5 billion. Reserves at the mine top 7.5 million ounces.

Unlike many of its rivals Newmont has been building its portfolio and is expanding the Cripple Creek & Victor gold mine in Colorado in acquire last year. Its Merian mine in South America with annual production of 300–375,000 an ounce started production this month. Middle next-year it expects to complete an expansion that would add around 80,000 ounces to its Tanami mine in Australia. Newmont’s Long Canyon will add 100–150,000 ounces per year starting next month.

In addition unapproved projects mainly in Africa “represent upside of between 200,000 and 300,000 ounces of gold production beginning in 2018.”