Newmont to buy Canada's Fronteer Gold for $2.3 billion

Newmont Mining Corp (NEM.N) has agreed to buy Fronteer Gold Inc (FRG.TO) for C$2.3 billion ($2.3 billion), extending its presence in the western United States as bullion prices hover near record highs.

The cash and stock transaction - the latest in a string of deals targeting Canadian miners - will add 4.2 million ounces of gold resource to the portfolio of the world's second-largest gold producer.

This acquisition of Fronteer Gold is in line with some of the more recent acquisitions in the gold space, where major mining companies have been going after very high quality assets, said Adam Graf, a mining equity analyst for Dahlman Rose in New York.

Fronteer shareholders will receive C$14 in cash and one common share in a new company, called Pilot Gold, in exchange for each common share of Fronteer Gold.

The offer represents a 37 percent premium to Fronteer Gold's Wednesday close of C$10.25. Fronteer shares rose more than 40 percent to C$14.40 on Thursday afternoon.

The reason they are worth so much is because the projects are very robust, Graf said. The capital costs are low, the operating costs are low and the projects are fairly scalable, and that's what makes it attractive to Newmont.

CANADIAN TARGETS

Canada has spawned some of the world's most successful mining companies, including Barrick Gold Corp (ABX.TO), the No. 1 gold producer. Many of them have become attractive targets for global players looking for growth.

Only last month, Cleveland, Ohio-based Cliffs Natural Resources (CLF.N) offered more than C$4 billion for Canada's Consolidated Thompson Iron Mines (CLM.TO), while Lundin Mining (LUN.TO) and Inmet Mining (IMN.TO), two Canadian base metal miners, agreed to a C$9 billion combination.

Gold mining has become one of the biggest draws with bullion prices near record highs, and with mid-size and larger producers struggling to maintain production profiles or offset declines after years of growth.

Toronto-based miner Kinross Gold (K.TO), with properties primarily in the Americas, completed one of the top Canadian mining deals of 2010 with a $7.1 billion purchase of Africa-focused Red Back Mining, making it the world's fourth-largest gold miner by market capitalization.

Spot gold was trading at some $1,336 an ounce on Thursday, more than five times its price a decade ago. Gold rose to a record of $1,430.95 an ounce in December.

The Fronteer Gold deal, supported by the board, will extend Newmont's presence in the U.S. state of Nevada, where it has operated since the 1960s, adding as much as 400,000 ounces of gold to Newmont's output for the state, currently at some 2.0 million ounces.

Fronteer owns a 100 percent interest in the development-stage Long Canyon project in Nevada, located about 100 miles from Newmont's existing operations in the western state.

The acquisition of Fronteer Gold will contribute significantly to our anticipated growth profile in North America, Newmont Chief Executive Richard O'Brien said in a statement on Thursday.

Fronteer shareholders are expected to vote on the deal in early April. It requires two-thirds approval.

The two parties have agreed to a C$85 million break fee should either side back out of the deal.

Newmont's financial adviser is BMO Capital Markets, and its legal counsel is Goodmans LLP and Wachtell, Lipton, Rosen Katz.

Fronteer Gold's financial adviser is RBC Capital Markets, and its legal counsel is Davies Ward Phillips & Vineberg LLP.

($1=1 Canadian dollar)