OceanaGold has signed a Letter of Intent to acquire Newmont's Waihi gold mine in New Zealand.
The non-binding LOI will see OceanaGold pay US$101 million in cash to purchase the operation, which consists of the Martha open pit, the Favona, Trio and Correnso underground mines, and an existing exploration program across nearby tenements, as well as existing milling capacity.
According to Newmont only the Correnso underground mine is in active operation.
As part of the agreement Newmont will retain a 1% net smelter royalty for gold ounces mined from one specific, as yet unnamed, exploration tenement capped at 300,000 ounces of production.
The mining M&A market has recently been gaining in strength, with the recent US$1.5 billion merger between Alamos Gold and AuRico, and the continuing speculation that X2 Resources Mick Davis will deploy his $US7.3 billion war chest, giving fuel to the sector as it enters into the low-end, M&A hot-spot.
Speaking on the agreement, OceanaGold CEO Mick Wilkes said the operation has long been a strong strategic fit for the miner.
"Waihi represents a unique opportunity for us to acquire a high-quality asset that has demonstrated the propensity to extend mine life for more than two decades in what is still a very prospective, high-quality goldfield," Wilkes said.
"This proposed acquisition is accretive to shareholders, grows our production profile and importantly will further reduce our industry leading All-In-Sustaining Cost (AISC) profile."
The agreement comes on the back of OceanaGold's announcement of an extension to its Frasers underground mine.
Regarding existing operations at the site, Newmont Waihi Gold general manager Glen Grindlay syid until the sale occurs it will be "business as usual".
"We want this transition to be as smooth as possible."
Importantly, for the workforce, Grindlay added that all "Newmont Waihi Gold empoyees will continue to be employed by the same company, Waihi Gold Company Ltd, but with new owners".
"All of our current existing New Zealand contracts will be transferred directly to the new owners of the company. This includes the smaller contracts we have with local businesses and the large contracts we have with companies such as Macmahon, Leighton and Boart Longyear."
OcenaGold has until June 1 to complete its due diligence.
The purchase price of US$101 million in cash includes customary adjustments, which OceanaGold is funding from its existing warchest of US$59.6 million, whilst it will draw down US$77.8 million from its revolving credit facility – leaving US$97.2 million undrawn – for the rest of the acquisition costs.
Citigroup Global Markets is serving as the financial advisor while Anderson Lloyd is acting as the miner's legal advisor.