US gold giant Newmont in $24bn bid for Australia’s Newcrest Mining
The offer would ease concerns about Newcrest’s complex growth plans, but may need a bump to win shareholder support, analysts say.
Newmont’s $24bn all-scrip offer for Newcrest Mining would ease concerns around the company’s ability to execute its complex growth plans, but might need a bump to win shareholder support, analysts say.
Newmont kicked off 2023 by proposing a $77bn gold megamerger with Newcrest Mining, in an all-scrip deal that would extend its position as the biggest gold company in the world.
Newcrest confirmed on Monday it had received an all-scrip offer from Newmont, with the world’s largest gold miner offering 0.38 of its own shares for each Newcrest share on issue.
Newcrest said on Monday the February 5 offer was an improvement on a previous bid of 0.363 Newmont shares for each of its own shares.
The revised offer implies a $27.16 valuation on each Newcrest share and a 21 per cent premium to Friday’s closing price.
The company said its board had rejected the earlier offer as it “would not deliver sufficiently compelling value to shareholders”.
If the merger goes ahead it would mean the Newcrest shareholders would emerge with about 30 per cent of the combined entity.
Its shares jumped more than 14 per cent on the news, before closing up $2.08, or 9.2 per cent, at $24.53.
Newcrest is due to deliver its half-year financial results on February 16, with its board and advisers likely to take at least that long to consider whether the Newmont offer is worthy of a period of exclusive due diligence investigations.
Newmont chief executive Tom Palmer said on Monday the bid was a “compelling opportunity” for both sets of shareholders.
“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,” he said.
“The proposed transaction would join industry-leading portfolios of assets and projects to create long-term value across the combined global business, and we welcome the consideration of Newcrest’s board of directors.”
But while concluding that the offer seemed fair on a first look, analysts said on Monday Newmont could be forced to bump its bid again to win shareholder support.
RBC Capital Markets analyst Alex Barkley said the Newmont valuation seemed “reasonable”, but noted the bid came at a time of transition for Newcrest, which is still looking for a new chief executive and faces a number of years of spending before it can turn its suite of growth projects into cash generating assets.
“It may be perceived by some that this bid has opportunistically come at a time of temporary management transition and uncertainty,” he said in a client note.
Mr Barkley noted that about 25 per cent of Newcrest’s revenue came from copper sales, at a time of rising market interest in the industrial commodity.
“The relative valuation of copper production could over time rise versus gold for ASX miners. Particularly given the potential ongoing acquisition of copper miner Oz Minerals,” he said.
The merger, if agreed, would extend Newmont’s position as the biggest gold miner in the world, adding Newcrest’s Australian and PNG assets to Newmont’s top-tier global suite.
It extends the run of blockbuster gold mergers over the last five years, kicked off by Barrick’s acquisition of Randgold and Newmont buying GoldCorp in 2018 and 2019, and pushed forward more recently by Agnico Eagle’s merger with Kirkland Lake in 2022, and then the bidding war between Gold Fields and Agnico Eagle over the future of Yamana Gold.
Newcrest said on Monday it was considering the indicative proposal, which is subject to Newmont receiving exclusive access to Newcrest’s books, along with regulatory approvals in Australia and elsewhere.
Newmont already operates the Boddington and Tanami gold mines in Australia, as well as two gold mines in Ghana, six in North America and four in South America.
The deal would unite three of Australia’s five biggest gold mines under Newmont’s ownership, delivering Newcrest’s Cadia into a group with Boddington and Tanami.
Newcrest’s Lihir mine in Papua New Guinea is also one of the region’s biggest gold mines.
On top of that, Newmont would acquire Newcrest’s top-tier project pipeline, including the potential expansion of Telfer through the nearby Havieron deposit, the long-stalled Wafi-Golpu project in PNG, a major underground expansion of its Red Chris mine in Canada, and its strong options in Ecuador including Newcrest’s stake in troubled explorer SolGold and its relationship with Canada’s Lundin Gold.
Barrenjoey analyst Glynn Lawcock said in a client note that Newcrest was trading at a discount to its global peers, largely because the market was putting little value on its growth projects.
“While Newcrest is on a small discount based to peers based on current earnings, many of its key assets do not currently generate material earnings. This is because they are a greenfield project (Wafi-Golpu), set to be reshaped by a major restructure (Telfer-Havieron and Red Chris) or a listed investment (the 32 per cent interest in Lundin Gold),” he said.
Mr Lawcock said the Newmont bid could also spur the Newcrest board to instead consider asset sales, or a spin-out of its PNG assets, to crystallise some of that value if it wanted to defend a takeover bid.
Newcrest said the deal would not necessarily remove its assets away from an ASX-listing, with Newmont considering a secondary listing on the Australian stock market if its bid is successful, which could give Australian holders the opportunity to retain liquidity and broader exposure to the global gold sector.
The Newmont bid catches Newcrest at a time of transition, with the company still looking for a new chief executive following the sudden departure of long-term boss Sandeep Biswas in late 2022.
Newcrest said its board – along with advisers JP Morgan and Gresham Advisory partners – is still considering the offer, and said shareholders should take no action in relation to the bid until it makes a further recommendation.
The merger would be a reunion of sorts for the pair, given Newcrest was effectively created when Newmont spun off its Australian assets into a separate company in 1966, then sought a local listing vehicle in 1987 – Newmont Australia – before acquiring Australmin and then merging with BHP Gold in 1991 to create Newcrest Mining.
At the time the principal asset of the pair was the jointly-owned Telfer Gold mine in the north of WA, as well as a 20 per cent stake in Boddington, now wholly controlled by Newmont.
Mr Barkley said it as possible, but unlikely, an alternative bidder could come forward, nominating gold majors Barrick and Agnico Eagle as potential rival bidders.
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