Newmont Goldcorp Corp. [NGT-TSX, NEM-NYSE] is moving to streamline its asset base by selling its Red Lake complex in northwestern Ontario to Evolution Mining Ltd. [EVN-ASX] of Australia for $375 million in cash. Under the deal, Newmont Goldcorp can also receive contingent payments of up to an additional $100 million. The additional payments are tied to new resource discoveries.
Red Lake is an underground gold mining complex, which has been in production since 1949, producing 25 million ounces of gold at an average grade of 20 g/t. It now consists of the Red Lake and Campbell complexes.
Each complex consists of an underground mine and associated processing facility as well as the nearby Cochenour mine. There are currently 1,180 employees and contractors on the payroll.
The complex was a key asset in the portfolio of Vancouver-based Goldcorp before the company was acquired by US giant Newmont Mining Corp. in April, 2019. The combined company now ranks as the world’s largest gold producer.
In 2018, Red Lake produced 276,000 ounces of gold at an all-in-sustaining cost (AISC) of US$988 per ounce. This year, Red Lake is expected to produce 150,000 to 160,000 ounces of gold at an AISC of approximately US$1,600 an ounce.
It has been rumoured widely that the Red Lake operation was up for sale. On Tuesday, Newmont Goldcorp shares were unchanged at $50.27. The shares are trading in a 52-week range of $40.01 and $54.87.
Evolution is an Australian gold miner which operates five wholly-owned mines in Western Australia. Evolution also holds an economic interest in the Ernest Henry mine in Queensland, Australia that will deliver 100% of the future gold and 30% of the future copper and silver produced from an agreed life of mine area.
Evolution has said it expects to produce between 725,000 and 775,000 ounces of gold next year.
Under the terms of the $100 million contingent payment, Evolution will pay Newmont $20 million for each one million ounces of new gold resources added to the existing Red Lake resource base over a 15-year period. The contingent payment is applicable to the first five million ounces of new resources.
Meanwhile, Evolution has committed to invest US$100 million on existing operations and an additional US$50 million on exploration at Red Lake over a three-year period after the acquisition is complete. Evolution said it is planning to complete over 100,000 metres of drilling annually.
“Evolution is excited to be adding Red Lake to its portfolio, providing the company with a high-grade, long-life gold mine in Canada,” said Evolution Executive Chairman Jake Klein. He described the complex as an under-capitalized asset and said it will become a cornerstone asset in the Evolution portfolio.
As of June 20, 2018, Red Lake ore reserves still at 2.1 million ounces, grading 7.0 g/t gold. On top of that is a significant mineral resource (including ore reserves) of 7.0 million ounces at a grade of 11.2 g/t gold.