Newmont offers operating chops to Newcrest holders, as pitches begin in $32bn takeover.
Having the best deposits is no longer enough in mega mining mergers, it’s also about the technology and operating ability the target brings to the deal.
If there’s a key theme emerging in the latest round of blockbuster mining mergers it is that technology and operating ability is becoming an increasingly important part of the growth story.
Like BHP’s takeover over OZ Minerals, Newmont’s offer for Newcrest Mining is partly aimed at capturing a new skill set for the global miner, with operating synergies a key part of the pitch to shareholders on both sides.
In pitching its revised offer for Newcrest to its own shareholders on Tuesday, the focus on Newmont’s release was not so much the value of the assets it is seeking to acquire, but the $US1bn ($1.5bn) in annual synergies it claims to have delivered from its last blockbuster merger in 2019 with Goldcorp.
Along with that came a focus on Newmont’s “integrated operating model and proven Full Potential program” – an in-house continuous improvement program that the company boasts has delivered more than $US5bn in savings since first introduced in 2014,
To a certain extent Newmont boss Tom Palmer needs to convince US investors that the gold major has earned the right to move on another of its peers so soon after the megamerger.
But there’s also a key message in there for Newcrest shareholders, fed up with the company’s failure to live up to the promise of its assets.
“The business would be immediately supported by Newmont’s scalable, integrated operating model with a deep bench of subject matter experts and existing regional platforms in Australia and Canada,” said the Newmont release.
In addition, Newmont singled out a few of its focus areas over the last few years – in particular, optimising processing circuits and reducing mill and equipment downtime, words that might elicit a wince or two from any close follower of Newcrest’s hiccups at, for example, Lihir in Papua New Guinea.
The clear message for any wavering Newcrest shareholder is clear – we can get the best out of your assets, in a way you wished your company had delivered.
Mind you, it is more than 12 years after Newcrest’s own blockbuster takeover of Lihir Gold and the mine is still nowhere near the promised million ounce a year production rate, so you’d easily forgive Palmer and his management team if they decided to get rid of the thing and let someone else have a go.
Still, it would be unfair to suggest that Newcrest has been a poor performer. At worst, it has just never been quite good enough to sustain its reputation.
Its outstanding successes – the block cave at Cadia – have been undermined by regular failings, such as the 2018 tailings dam failure at the same mine.
The fact that Telfer is still in production, almost 50 years since it was first opened by Newmont, is a significant achievement. Undermined, though, by the lingering question of why it remains in Newcrest’s portfolio. And if the vaunted Havieron deposit is its future, why was that never discovered by Newcrest’s own exploration teams?
But underlying Newcrest’s position is an issue barely mentioned in Newmont’s release. It remains one of the few global mining companies with the demonstrated ability to build and operate a block cave mine.
There is no doubt that is a key factor in Newmont’s bid for its Australian rival – as it was in BHP’s offer for OZ Minerals, which has also done the hard yards to build the expertise.
Block cave mining involves undermining a deep, low grade ore body, allowing it to progressively collapse under its own weight. It is the only underground mining method that offers the prospect of matching open pit production rates and operating costs, allowing bulk removal of large volumes of lower-grade ore.
And it is not easy. Ask Rio Tinto about Oyu Tolgoi, where the block cave is now years late and billions of dollars beyond the original budget.
The fact that Newcrest has the people to build and run one is a major competitive advantage for the company, and one Newmont is keen to acquire.
It is the key to unlocking Newcrest’s Canadian assets, and potentially those of Newmont in the same region and around the world.
But all of that is in the future, and – given that Newcrest, like OZ Minerals, seems destined to disappear – the pitch on operating performance and group savings, seems the key to the current campaign.
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