BoA-advised Newmont needs to lift $24bn Newcrest bid: investors

Newcrest is in play following a $24bn buyout proposal from Newmont.

Shareholders in Newcrest Mining have described Newmont’s $24.3bn buyout proposal as too low, but say the offer is a good starting point for further negotiations.

Newcrest announced on Monday that it received an indicative proposal on Sunday from the world’s largest miner, the US-based Newmont, offering 0.38 Newmont shares for each Newcrest share held, implying an offer price of $27.16 per share as at Friday.

The offer is a 21 per cent premium to Newcrest’s closing price of $22.45 on February 3 and a 27 per cent premium to Newcrest’s 30 day volume weighted average price of $22.22 per share at an at an implied offer price of $28.32 per Newcrest share based on Newmont’s 30 day VWAP.

It comes after it earlier offered 0.363 Newmont shares for each Newcrest share.

The Newcrest board rejected the first proposal but is considering the latest offer.

Newcrest is working with Gresham and JPMorgan and Herbert Smith Freehills while Newmont is working with Bank of America and Lazard.

One Newcrest shareholder spoken to by DataRoom said that they would prefer a cash offer and that they did not believe that the current bid was high enough.

But they said they believed that Newcrest would ultimately be privatised given the level of dissatisfaction with the company’s performance.

Shareholders last week told DataRoom that they had been unhappy about the level of free cash flow delivered when gold was at $US1900 an ounce, rallying strongly from the price declines late last year.

They believed that the company had been deploying too much of their capital in business interests elsewhere and needed to focus more of its attention on its core operations.

One shareholder said it was why they had been lobbying for the company to replace its outgoing boss, Sandeep Biswas, with an external candidate with operational expertise.

They added that a strong control on costs and better operational expertise was needed across the Australian listed gold sector.

Newcrest is currently run by Sherry Duhe as the interim chief executive, who has more of a finance background, so with no current boss, it makes the company more vulnerable to buyout.

Allan Gray is a major investor and managing director Simon Mahwinney said he was not surprised to see inbound interest in Newcrest.

“ It has predominantly low cost operations and extremely long reserve lives relative to its peers,” he said.

“We’d support a transaction but only where the effective price was fair. And a fair price would be one where both the buyer and seller feel they have gotten a poor deal. The deal terms released today appear to fall short of this.”

Should a buyout be completed, it will take out Australia’s best quality Australian gold miner, but still leave major rivals including Northern Star and Evolution as investment opportunities.

But Newmont, which is seen to be making an opportunistic offer at a time the target is vulnerable, is also contemplating the establishment of a Chess Depositary Interest listing on the ASX for Newmont shares issued to Newcrest shareholders.

Market experts say that mergers and acquisitions in the gold space were happening at pace, and other listed groups would likely grow in scale.

DataRoom has learned that Newcrest idered joining forces with Newmont to bid for Barrick Gold in 2018 before Barrick merged with Randgold.

In terms of other companies that may make a rival offer, global gold mining heavyweight Barrick Gold has been retreating from Australia, although there was some talk in November in the market it was looking at DeGrey Mining, while Canadian gold miner Agnico is positioning itself as more of a copper miner and is considered too small.

The offer may suggest that Newmont is in need of improving the quality of its portfolio and that should it buy Newcrest, it would likely offload the lesser quality assets in both businesses.

Sources believe that Newcrest has a close relationship with JPMorgan’s former Australia boss Paul Uren who now runs the bank’s regional operations out of Hong Kong.

In the past, Newcrest has always seen its Lihir Gold Mine in PNG as a poison pill for any buyer due to its involvement in Deep-Sea Tailings which is controversial from an environmental perspective.

Newcrest paid $9bn for Lihir in 2010.

Its other core operation is the Candia mine in Orange, NSW.

Newcrest is also seen as valuable for its underground, rock mining method known as block caving technology used in mining only mainly by Rio Tinto.