Newmont Mining Corporation NEM has entered into a definitive deal with Goldcorp Inc. GG to acquire all of the outstanding common shares of the latter in a stock-for-stock transaction valued at $10 billion.
Per the deal terms, Newmont will acquire each Goldcorp share for 0.3280 of a Newmont share. This represents a 17% premium based on the companies’ 20-day volume weighted average share prices as of Jan 11, 2019.
The deal combines two industry leaders into Newmont Goldcorp, creating an unmatched portfolio of projects, operations, reserves and exploration opportunities in the gold mining sector. The new entity is expected to generate annual pre-tax synergies worth up to $100 million along with additional cost and efficiency opportunities.
Moreover, the combination is likely to be immediately accretive to Newmont's cash flow per share and net asset value. Newmont Goldcorp's resources and reserves will represent the largest in the gold sector. These will be located in favorable mining jurisdictions in the Americas (75%), Ghana (10%) and Australia (15%).
Newmont Goldcorp is expected to generate robust free cash flow, which will be supported by profitable, stable, long-term production along with an investment-grade balance sheet. It will also have the financial flexibility to fund exploration and project development in the long term.
The deal has been unanimously approved by the boards of both companies and is expected to close in the second quarter of 2019. However, the deal closure is subject to approval by shareholders of both companies and other regulatory approvals and customary closing conditions.
Specific Terms of the Deal
Newmont will purchase all outstanding equity of Goldcorp at an exchange ratio of 0.3280 of a Newmont share and 2 cents for each Goldcorp share. Notably, the equity value of Goldcorp is $10 billion and the enterprise value is $12.5 billion. Newmont shareholders will own roughly 65% and Goldcorp shareholders will own around 35% of the combined entity.
Per Newmont, the deal is to be implemented by a court-approved plan of arrangement under the Business Corporation Act (Ontario). Under certain conditions, Newmont and Goldcorp will be entitled to a $350 million break-fee (or 3.5% of Goldcorp's equity value) and $650 million break-fee (3.5% of Newmont's equity value), respectively.
Strategic Rationale of the Deal
Newmont Goldcorp is poised to become the world's leading gold company with a strong balance sheet, unparalleled project pipeline across four continents, the sector's biggest gold reserves and resource base and opportunities for exploration in the world's most prospective gold districts.
The integrated company’s experienced management along with talented mining professionals will be able to deliver long-life and low-cost profitable gold mining operations. The company will be able to leverage its combined scale, targeting a profitable gold production in the band of 6-7 million ounces over long-term horizon.
Newmont Goldcorp will also offer shareholders and other stakeholders a targeted sustainable annual dividend of 56 cents per share, which is notably the highest among senior gold producers.
Shares of Newmont have lost 20.5% in the past year compared with the industry’s 16.4% decline.
Zacks Rank & Key Picks
Newmont currently carries a Zacks Rank #3 (Hold).
A couple of better-ranked stocks in the basic materials space are Ingevity Corporation NGVT and Cameco Corporation CCJ. While Ingevity sports a Zacks Rank #1 (Strong Buy), Cameco carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingevity has an expected earnings growth rate of 21.5% for 2019. The company’s shares have gained 16.8% in the past year.
Cameco has an expected earnings growth rate of 20% for 2019. Its shares have rallied 27% in a year’s time.
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