Newmont Addresses Divestiture Demands

Newmont Mining Corp. recently issued an update of its position on mandatory divestiture of a 31% stake in PT Newmont Nusa Tenggara (PTNNT) to Indonesian parties, as stipulated under the terms of a 1986 Contract of Work with the Indonesian government. Newmont and Nusa Tenggara Mining Corp. (NTMC), an affiliate of Sumitomo Corp. currently have a combined 80% ownership interest in PTNNT, with Newmont’s individual interest at 45% and NTMC's at 35%. The remaining 20% of PTNNT is owned by an unrelated Indonesian company. PTNNT owns and operates the Batu Hijau mine.

Newmont and NTMC offered to sell a 3% interest in the mine to the Indonesian government for $109 million in 2006, and a further 7% to the Indonesian government for $282 million in 2007. After the government declined the offers, the Indonesian Ministry of Energy and Mineral Resources requested that shares in PTNNT be offered to local government entities. Newmont said it and NTMC have engaged in ongoing efforts to divest shares to the local governments, and on January 28, 2008, the companies signed an agreement to transfer a 2% interest in PTNNT to an entity controlled by the Kabupaten Sumbawa government. Newmont said it “continues to work closely” with local government entities and other Indonesian parties to conclude the sale of the remaining 8% interest in PTNNT currently on offer.

However, despite the transfer the Indonesian Ministry of Energy and Mineral Resources issued a letter of default to PTNNT on February 11, 2008, claiming that PTNNT has failed to perform its divestiture obligations under the Contract of Work.

Newmont President and CEO Richard O'Brien, said, “We fundamentally dispute and firmly disagree with the allegation that PTNNT has breached its Contract of Work. We have worked diligently to divest PTNNT’s shares to the local Indonesian governments, as highlighted by our recent agreement with Kabupaten Sumbawa. We remain committed to working closely with the local governments and other strategic partners to fulfill our divestiture obligations under the Contract of Work.

“We remain equally committed to protecting our property and contractual rights against any unfounded allegations of default or noncompliance. Our priority remains the transparent, fair and orderly divestiture of our shares as stipulated in the Contract of Work. We expect the Indonesian authorities to respect our rights under the Contract of Work, and we will vigorously enforce and defend these rights as necessary,” O’Brien said.

All in all, 2007 could be termed a disappointing year for Newmont, which recently reported that its earnings in the fourth quarter and during the full year fell 338% and 229%, respectively, to a loss of $0.63 a share and $4.17, respectively. The losses were mainly attributed to charges that included a $1.1-billion writedown of exploration goodwill due to changes in reserve replacements, and the company’s divestiture of its merchant banking business.

Total gold ounces sold declined by 14% to 6.18 million oz, and despite the 17% increase in the average price of gold over 2007 to $697/oz, costs increased by 34%. Interestingly, an increase in the company’s 2007 revenue of 13% to $5.5 billion was mainly due to copper sales from the Batu Hijau mine.

As featured in Womp 08 Vol 2 - www.womp-int.com