Newmont (TSE: NMC) has made a friendly takeover offer for Miramar Mining Corp (TSE: MAE) for $6.25CDN.   The company owns the Hope Bay deposit in the high Artic at the junction of Nunavut and the NWT of Canada.  The deposit(s) contain roughly 10 million ounces of gold of which approximately 5 million ounces are indicated.  With 244 million shares fully diluted the company is capitalized at 1.5 billion CDN.   Given its location the mine will have a high capital costs (getting things into the high Artic isn’t cheap) and a high operating costs (everything is more expensive in the Artic).   My guess is the bulk of the deposit (7.6 million ounces averaging 3.3 grams/t, they don’t indicate the cut-off grade) won’t be able to be mined at a profit given its location. 

As an aside remember 3.3 g/t of gold is about $77 at today’s price and no one is going to get a tonne of rock out of the ground and process it for that in the Artic.  There won’t be any heap leaching on big pads.

If Newmont figures it can mine everything (all 10 million contained ounces in the high and low grade zones) it is paying about $150 CDN per inferred and indicated ounce.   If Newmont figures the larger low grade zone (3.3g/t) isn’t economic then Newmont is paying for just the 3 million contained ounces in the inferred and indicated in the high grade zones.  That would work out to about $500 per ounce from the inferred and indicated resource.

In our case the FDN is located an area that is undeveloped but accessible.  It has exsisting road access so development costs should be within the norm for a large mine and operating costs which are lower given the mining costs in South America.   So before anything else the costs structure for ARU is much better than for MAE so the offer per ounce should be better.   With what looks to be 14 million ounces (with a 2.3 g/t cut-off) that can be mined, the low-ball offer ($150/oz) would be $2.1 billion CDN and the high end $7 billion CDN.   That would be between $15 and $50 CDN per ARU share.

The FDN deposit is much much better than Miramar’s hope Bay deposit and will be much easier and considerably cheaper to mine.   Add to the mix that the deposit is constantly being expanded and has lots of poetntial and we should be worth multiples of what we are trading for today.  Maybe that is why volume has picked up and those large blocks are moved across the market the past couple of days.

Hang tight and let’s see what come next!