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Fresnillo to Buy Newmont Mining’s Stake in Penmont

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Precious-metals miner Fresnillo PLC said it has agreed to buy Newmont Mining Corp.’s 44% stake in their Mexican Penmont joint venture for $450 million in cash, increasing its presence in the country’s gold mining industry.

The deal gives Fresnillo, the world’s largest primary silver producer and Mexico’s second-largest gold miner, full control of three mines and two advanced, low-cost projects, in addition to several exploration properties in and around the Herradura corridor in northern Mexico.

Fresnillo’s Chief Executive Octavio Alvidrez said Friday the move would boost the U.K.-listed miner’s 2018 gold production target by 50% to 750,000 troy ounces with revenues equally split between gold and silver. This is broadly similar to last year’s revenue split.

Fresnillo’s shares rose as much as 1.6% on the news before paring back gains.

Mr. Alvidrez expects the deal to enhance earnings in the first full-year after closure. It is forecast to close in early October, subject to Fresnillo shareholder approval, and will be paid using the company’s $1.1 billion cash pile.

Fresnillo said that production delays at its Herradura operations due to technical difficulties prompted the company to lower this year’s gold output guidance of 450,000 ounces by 4% to 8%. The company, however, expects to make up the shortfall the following year. The figure excludes additional ounces accrued from the new purchase. This should boost the company’s total gold output to 600,000 ounces to 620,000 ounces this year, a spokesman said.

The stake purchase will also boost the company’s gold reserves and resources by 43% and 18% respectively to 6.7 million ounces and 33.5 million ounces.

For Newmont, the world’s second-largest gold miner by production, the sale is in keeping with its strategy of selling smaller assets to pursue larger growth projects such as its $1 billion Merian gold mine in Suriname.

Newmont has come under increasing pressure from its investors to deliver better returns after it posted a loss of $2.5 billion last year, the biggest in its history. It has sold $1.3 billion in assets since last year, the company said.

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