Gold Consolidation Continues: Newmont Buys Fronteer (NEM, FRG)

Newmont Mining Corporation (NYSE: NEM) is doing what we would have expected to see more of in late 2009 and into 2010.  It is making an acquisition. The company is buying a Canadian company called Fronteer Gold Inc. (NYSE Amex: FRG), but the acquisition appears to be for the Nevada operations located near Newmont’s operation in Nevada..

Fronteer Gold shareholders will receive C$14.00 in cash and will receive one common share in a new company called Pilot Gold.  The NewCo will own certain exploration assets of Fronteer Gold.  The cash buyout price comes to a premium of approximately 37% to Fronteer Gold’s close yesterday.  The total value in Canadian Dollars (close to Par with U.S. Dollar) is $2.3 billion.  Newmont’s market cap as of yesterday was $27.4 billion for a comparison.  It is not quite 10% of the size.

Fronteer Gold owns a 100% interest in the development-stage Long Canyon project that is about one hundred miles from Newmont’s existing infrastructure in Nevada, which gives Newmont the potential for significant development and operating synergies.  Fronteer also owns a 100% interest in the Northumberland project and a joint venture interest with Newmont in the Sandman project in Nevada, among other assets.

Fronteer Gold has total attributable Measured and Indicated gold resources of 4.2 million ounces and Inferred resources of 1.7 million ounces at Long Canyon, Northumberland and Sandman.  In January 2011, Fronteer Gold released an interim resource estimate for Long Canyon, which reported Measured and Indicated resources of approximately 1.4 million gold ounces and an additional Inferred resource of approximately 0.8 million gold ounces.

Pilot Gold will own a portfolio of Fronteer Gold’s exploration properties in Nevada, Turkey, and Peru and will be capitalized at closing with $10 million (Canadian Dollars) of cash.  After the deal closes, Fronteer Gold shareholders will hold an aggregate 80.1% interest in Pilot Gold, and Newmont will hold the remaining 19.9% interest and Pilot Gold common shares will be consolidated on a one-for-four basis.

Fronteer Gold Inc (NYSE Amex: FRG) shares are trading up 38% at $14.38 versus a 52-week range of $3.76 to $12.09.  This buyout price appears to be an all-time high.

JON C. OGG