Newmont offers to buy Australia's biggest miner amid gold merger spree
Newmont Corp., the world’s largest gold miner by output, has offered to buy Newcrest Mining Ltd., Australia’s largest gold miner, for the equivalent of US$17 billion, accentuating the industry’s desire to consolidate amid rising costs and a dwindling number of high-performing gold mines.
The takeover would ripple into Canada, as both companies operate mines there and are listed on the Toronto Stock Exchange. If the deal goes through, Newmont could strengthen its position in British Columbia by acquiring Newcrest’s Red Chris mine, situated about 1,700 kilometres north of Vancouver, and its Brucejack gold mine, which is located about 950 kilometres north of Vancouver.
Newmont already owns the Éléonore gold operation in northern Quebec and the Musselwhite and Porcupine operations in Ontario.
“We believe a combination of Newmont and Newcrest presents a powerful value proposition to our respective shareholders, workforce and the communities in which we operate,” Tom Palmer, chief executive of Denver-based Newmont, said in a press release dated Feb. 5.
Each Newcrest shareholder would receive 0.38 Newmont shares for each Newcrest share, the Australian miner said in a press release on Feb. 6 that confirmed Newcrest’s management is considering the offer.
The company also said this was Newmont’s second offer that followed a bid of 0.363 Newmont shares for each Newcrest share, which Newcrest rejected.
Newcrest shares were trading at around $20 per share when markets closed last week, little changed from a year earlier, while Newmont’s shares closed at around $67 in Toronto, down about 17 per cent from the same period in 2022.
Newmont’s bid to get even bigger extends a series of consolidations in the gold sector in recent years. Late last year, Yamana Gold Inc. agreed to sell itself to two Canadian rivals, Agnico Eagle Mines Ltd. and Pan American Silver Corp., for about US$4.8 billion.
Yamana’s outgoing executive chair Peter Marrone told The Financial Post last month that he expects a wave of gold mergers as executives and investors seek to maintain margins amid higher production costs and declining grades of the metal.
Resource industries are on the front lines of the climate challenge, whether it be coping directly with extreme weather, or indirectly through rising costs associated with adjustment and policies such as carbon taxes. Gold miners face an additional layer of difficultly because their deposits are yielding less ore that’s dense with gold. Lower grade mines can still be profitable, but only if extraction costs are lowered.
Aside from the sale of Yamana, which has properties and mines in Canada, Brazil, Chile and Argentina, there have been at least eight notable combinations since 2018, when Barrick Gold Corp. and Randgold Resources Ltd. announced an $18-billion, zero-premium, all-share merger.
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Bank of Nova Scotia analyst Tanya Jakusconek in a note to clients said that if the offer goes through, it would create the world’s largest gold miner with the market cap of the combined companies expected to reach about US$57 billion, producing about 8 to 8.5 million ounces of gold a year.
Newmont has a market cap of about US$39.5 billion, while its closest competitor, Barrick Gold Corporation, is at US$32.2 billion, a proximity that has raised questions in the industry about whether Barrick might put in its own offer for Newcrest.
The Toronto-based miner, however, seems to be more interested in exploring non-traditional mining countries for copper and gold, such as Pakistan and Saudi Arabia, as opposed to pursing mergers and acquisitions.
In an interview with the Financial Post on Jan. 21, Barrick’s chief executive Mark Bristow said: “M&A at the right time always is an option … the problem now is getting the quality. You pay up for it so all it does is make you bigger and there is got to be an embedded optionality.”
Acquiring Newcrest could increase Barrick’s presence in Canada, where it runs just one mine in Ontario. Bristow, however, said in the interview that the miner was currently focused on exploration in Canada and had “heavily” invested in training young Canadian geologists and mining engineers.
“We recognize it’s our home country and we are absolutely committed to putting our footprint in that country, but we have to do it against our investment filters,” he said.
Bank of Montreal analyst Jackie Przybylowski in a note to clients on Feb. 5 said Newmont’s bid would “surprise” the market but that it should be viewed as a positive.
“Newcrest’s assets fit well with Newmont’s existing portfolio, and the larger size of the combined company is consistent with Newmont management’s recent comments around responsibly pursuing size to ensure relevance,” she said.
Przybylowski added that Newmont might also divest some of its assets as Palmer in December had said that the company’s future acquisitions would be done with an aim to upgrade its assets.
“If that is the case, we could expect Newmont may divest assets either from the Newcrest or from its own portfolio,” said Przybylowski.
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