The buyout of Newcrest Mining by Newmont will trigger a new wave of mergers and acquisitions
Newmont’s buyout of Newcrest Mining will generate significant deal flow as non-core assets are sold off, analysts say.
Newcrest Mining, a company cobbled together from the “scraps” of Newmont Mining and BHP Gold more than two decades ago, will return to the fold after the Australian-listed firm’s shareholders voted to accept a $28.8bn takeover offer.
The scrip takeover of Newcrest by the world’s biggest goldminer, now known as Newmont Corporation, is also expected to kick off a wave of deal making in the Western Australian gold sector and further afield, as Newmont pares off assets which don’t fit the merged entity’s criteria.
Newcrest was created as Newmont’s Australian subsidiary in 1966, and was then known as Newmont Australia.
It merged with BHP Gold in late 1990, creating the nation’s largest pure gold producer, valued at $1.2bn.
That deal scuttled a play by Robert Champion de Crespigny’s Poseidon Gold for Newmont’s Australian arm at the time, predating by more than decade the $US1.98bn buyout by the Denver-based Newmont, of Mr Champion de Crespigny’s own Adelaide-based Normandy Mining, signalling its major return to Australian goldfields.
Newcrest chairman Peter Tomsett, reflecting on the deal on Friday, said the buyout by a foreign entity was “difficult on a personal level for a lot of people’’, given the hard work which has gone into building company over the past 30 years.
“We had a mine tour at Cadia and one of the descriptions given was that the whole situation was sad, but not bad,’’ he said.
“It’s a sad time for everybody but it’s an opportunity for everybody as well.’’
That opportunity also extends to the mid-tier gold producers and deal-makers who will be keenly waiting as Newmont runs the ruler over Newcrest’s assets - and even some of its own - and likely decides there are some which do not fit their investment criteria.
Newcrest’s major mining operations include the Cadia mine in NSW, Papua New Guinea-based open pit operation Lihir, Telfer in WA, the 70 per cent owned Red Chris mine in British Columbia, Canada, and the Brucejack mine, also in BC.
Altogether, Newcrest’s assets are expected to produce 2-2.3 million ounces of gold and 120,000-140,000 tonnes of copper this financial year.
But, like most major mining companies, it has plenty of non-core assets.
These include a 32 per cent stake in the Toronto-listed Lundin Gold, 10.3 per cent of London-listed SolGold with assets in Australia but also Ecuador and Chile, 19.9 per cent of Azucar Minerals, and 8.9 per cent of ASX-listed Antipa Minerals, among other equity investments.
It also has a 70 per cent stake in the Havieron copper-gold exploration joint venture with Greatland Gold, with that project 45km east of Telfer.
BDO head of global natural resources Sherif Andrawes said on Friday the last big merger, between Barrick Gold - now the world’s second largest gold miner - and Randgold in late 2018, triggered a “flurry” of merger and acquisition activity.
“Not always just things falling out of the mergers, but also others just following suit. Because if it works for companies of that size, it works for others,’’ Mr Andrawes said.
“The other element is, whenever there’s a merger, naturally, they look at ‘does everything fit within the new, new merged entity?’’’
Mr Andrawes said most of Newcrest’s Australian assets were probably a good fit for Newmont.
“But there’ll be some of the smaller things like some of the exploration areas which are probably not of interest.
“Also Newcrest has some quite significant investment, large stakes in smaller companies like Lundin and SolGold.
“They’re probably one of the most obvious things, probably the first thing to look at are those non strategic investments and some of the exploration areas.’’
The Havieron JV with Greatland might also fit into this category, Mr Andrawes said.
More broadly in the gold sector Mr Andrawes said there had been consolidation in the Leonora area, “and I think we’re going to see more of that’’.
There have also been rumours in the market for the past couple of months that Telfer would be put up for sale, which could be packaged together with Havieron.
Evolution Mining has already flagged its interest in any assets put on the sale block by Newmont, with founder Jake Klein telling the Australian at its mid-year investor day it would be in the running.
“The best opportunities do come for us from the majors and obviously (there’s) a lot of activity in the market at the moment,” he said.
“Newmont has made it clear that they are looking to dispose of some of their non-core assets if they proceed with the new post merger. So that is obviously a place that we would be looking in the future – recognising that it will take them probably until 2024 to make any decisions.”
Mr Tomsett would not comment on Friday about possible asset divestments, given that would be the responsibility of Newmont going forward.
At the meeting held to vote on the deal, he did field a number of queries on the question of whether shareholders were getting their due, with one asking, “Why do you think it’s OK to sell the company very cheaply?”
“Well, I don’t think it’s okay to sell a company very cheaply, and I don’t think we are selling it very cheaply,’’ Mr Tomsett said.
On the contrary, the prevailing trend in the sector at the larger end of the scale was for mergers with “just about always ... zero premium. mergers of equal’’, he said.
“We’ve managed to secure for our shareholders a significant premium, and that’s not easy to do in this world.’’
Mr Tomsett said the board had managed to extract a 17 per cent increase against Newmont’s first offer, which was an achievement given the US company was the only bidding party.
“More than they really wanted to pay, which was a 25 per cent premium in the first place, is an outstanding effort on behalf of our board and our advisors,’’ Mr Tomsett said.
“When you talk about the true value of the business, the true value of the business is what the market is willing to pay.’’
Mr Tomsett said he was convinced the share price would have been trading well below its current levels in the absence of the Newmont offer.
Mr Tomsett said shareholders would also retain their exposure to gold and a lesser extent copper.
Newcrest shareholders will receive 0.4 Newmont securities for each of their shares, plus a $US1.10 per share special dividend.
Australian shareholders will receive chess depository interest (CDIs) in Newmont which will continue to be traded on the ASX.
The votes cast at the scheme meeting on Friday were overwhelmingly in favour, with 92.63 per cent of votes cast supporting the deal going through.
Newmont CDIs are expected to start trading on the ASX on October 27.
Newcrest shares were trading at $26.08 on Friday, up 28c.