The stars could now be aligning for Newmont to lift its bid to buy the $25bn Australian gold miner Newcrest, with its share price staging a 23.5 per cent rally in the past month.
A rally in the gold price due to macro-economic factors and the fact that Newmont shareholders now appreciate the synergies that could be extracted from a tie-up with Newcrest are being attributed to the fact that Newmont’s share price has been on a tear of late.
Newmont came forward with a merger proposal for Newcrest on February 6 that was a 21 per cent premium to Newcrest’s previous closing price at the time of $22.45, implying a price of $27.16
US-based Newmont offered 0.38 Newmont shares for each Newcrest share held.
The February $24.5bn scrip bid was rejected by Newcrest, but with more sharemarket firepower, Newmont, which had been offered due diligence on a non-exclusive basis, can lift its offer.
Newcrest shares on Thursday closed up 25c, and they are up almost 18 per cent in the past month. Before Newmont launched its bid, Newmont’s share price was at $US54.19, but it fell to $US41.74 and has rallied back to $US52.05.
Working for Newcrest is Gresham and JPMorgan while Bank of America and Lazard are advising US-based Newmont.
The bid by Newmont kicked off a run of mergers and acquisition activity in the mining space, with it being followed by a $752m takeover offer by Andrew Forrest’s Wyloo for nickel miner Mincor, a $5.5bn rejected buyout proposal by Albemarle for Liontown, and Glencore’s $US22.5bn unsuccessful play for Teck Resources.
Newmont and Newcrest are said to be still talking, after the Australian gold major offered its US suitor limited access to its books in the hope of boosting Newmont’s valuation of its project development pipeline.
That pipeline also saw a major boost last week when Newcrest and the Papua New Guinea government signed off on a framework agreement that should finally see its Wafi-Golpu project in PNG back on the path towards construction.
Newcrest owns the giant gold and copper deposit with partner Harmony, and rates Wafi-Golpu as one of the best undeveloped prospects in the world, with the deposit estimated to contain more than 20 million ounces of gold at an average grade of 0.84 grams a tonne.
Its development has been stalled for the last three years, mired in messy local politics as the PNG government of James Marape looked to recut an earlier deal signed by his predecessor, Peter O’Neill.
While questions have been raised over its willingness to add another risky jurisdiction to its portfolio, Newmont boss Tom Palmer has indicated that jurisdiction alone would not scare the group from investment in top-tier gold deposits.
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