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Newmont Mining Buys Fronteer Gold

Stocks in this article: NEM FRG

NEW YORK ( TheStreet ) -- Newmont Mining (NEM) announced Thursday plans to acquire Fronteer Gold (FRG) for $2.3 billion, a 37% premium to Wednesday's closing price.

For the price tag, Newmont will get 100% ownership in Fronteer's Long Canyon project in Nevada, which has measured and indicated resources of 1.4 million ounces of gold. Fronteer's CEO, Mark O'Dea told me at the Denver Gold Forum that cash costs are estimated to be $350 an ounce.

"The acquisition of Fronteer Gold will contribute significantly to our anticipated growth profile in North America," stated Richard O'Brien, Newmont's President and CEO. Newmont produced 5.4 million ounces of gold at cash costs of $485 an ounce and sold 5.3 million ounces for an average of $1,222. The company will report fourth-quarter earnings on February 24th.

Newmont will also acquire two other projects from Fronteer: Sandman, already a joint venture with Newmont, and Northumberland, both of which are in Nevada and will come on stream between 2012-2014. In total, the company has measured and indicated gold resources of 4.2 million ounces. In total, Newmont paid about $547 for each ounce of gold.

A separate company, Pilot Gold, will be spun off with $10 million in cash and a portfolio of Fronteer's exploration properties. Fronteer will own 80.1% of the company and Newmont will hold the remaining interest. The goal is to continue exploration in Turkey and Nevada with Fronteer's management and experience.

This acquisition has been a long time coming. The worst kept secret in the gold community is that Newmont and Barrick Gold (ABX) would be forced to make acquisitions to replenish their gold supply following their peers Goldcorp (GG), Kinross Gold (KGC) and Agnico-Eagle (AEM) who bought Andean Resources, Red Back, and Comaplex, respectively.

Goldcorp paid a 35% premium, Kinross a 21% premium and Agnico a 30% premium, which had analysts worried that Newmont and Barrick would be forced to shell out the cash as well.

Tom Winmill, portfolio manager of the Midas Fund, warned investors to "avoid the big ones that don't already have growth in their portfolio. Newmont comes to mind. Barrick Gold is kind of treading water on the growth profile Barrick probably won't do an acquisition but Newmont might."

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