New Hope for Newmont

That's no easy task for Newmont, which is expected to produce up to 5.6 million ounces this year, or about 9% of the forecast global mined output for all firms. Notably, the Denver-based miner may not even replace the reserves it mined during 2007, a company spokesman says.

"Newmont, like other large gold producers, is unable to replenish its own reserves through its own drilling [which means it needs to buy properties instead]," says James Vail, portfolio manager at the (LEXMX Quote)ING Global Natural Resources fund in New York.

That's where the proposed acquisition comes in. Although it won't add to Newmont's reserves yet, it has the potential to do so in the future, as the deposits are more fully identified. Miramar's main project is in the Hope Bay greenstone belt, an area on the Arctic coast in the Nunavut territory.

Depending on how things develop, it could eventually help solve Newmont's problem of rising costs per ounce of production. Although some of the cost issues are associated with higher energy, equipment and personnel expenses, which all miners are facing, much is due to the ore grade.

Newmont's announcement about Miramar suggests it has the potential to provide competitive operating costs, which should bode well for reversing the upward trend in per-ounce costs.

For 2006, costs per ounce of gold sold at Newmont averaged $304, up almost 30% from $237 the prior year. Through the first half of this year, outlays skyrocketed to $427 per ounce. It's a trend that is frequently cited as a concern by money managers, and its reversal would be warmly welcomed.