Newmont Corporation NEM has inked a Strategic Alliance Agreement with Kirkland Lake Gold Ltd. KL to jointly evaluate regional exploration opportunities around the former’s Timmins properties and Kirkland Lake Gold’s Ontario, Canada-based Holt Complex.
Through the strategic deal, Newmont purchased an option from Kirkland Lake Gold on the mining and mineral rights subject to a royalty payable to Royal Gold, Inc. (Holt Royalty) by Newmont in exchange for a $75 million payment to Kirkland Lake Gold. In case Kirkland Lake Gold plans to restart operations at the Holt Mine and process material subject to the Holt Royalty, Newmont will be able to exercise this option.
Further, Kirkland Lake Gold has the right to assume Newmont’s obligations pertaining to the Holt Royalty and terminate the option. The structure of the option is such that Newmont will have no additional liability exposure related to the Holt Royalty.
Newmont stated that through the strategic alliance and the option mention earlier, it will be able to remove around $350 million liability for the Holt Royalty on its balance sheet as of Jun 30, 2020. The move will lead to a gain of roughly $275 million in its third-quarter results.
Kirkland Lake Gold will act as manager of the strategic alliance activities. The formation of this alliance also provides Kirkland Lake Gold with capital to assess future strategic alternatives for the Holt mining complex along with exploring existing opportunities and evaluate other regional opportunities where both companies can cooperate in future.
Newmont’s shares have surged 79.3% in the past year compared with the industry’s 24.5% rise.
In July, Newmont stated that it expects attributable gold production of around 6 million ounces in 2020. Gold CAS is projected at $760 per ounce for 2020, while AISC is expected to be $1,015 per ounce on higher sustaining capital spending.
The company is progressing with majority of its development and sustaining capital projects, including Tanami Expansion 2 and Subika Underground as well as advancing laybacks at Boddington and Ahafo.
Zacks Rank & Key Picks
Newmont currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space are Eldorado Gold Corporation EGO and Yamana Gold Inc. AUY, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Eldorado Gold has an expected earnings growth rate of 2,225% for 2020. Its shares have returned 38.8% in the past year.
Yamana has an expected earnings growth rate of 76.9% for 2020. The company’s shares have soared 91.8% in the past year.
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