Newcrest board approves $29bn Newmont takeover

The blockbuster deal with Newmont will combine two of the world’s largest gold producers, with a growing exposure to copper.

Newmont will look to Newcrest Mining’s copper-heavy projects as a key means of expanding its exposure to the commodity, according to Newmont boss Tom Palmer, as the gold giant looks to integrate Newcrest’s operations into its own.

The $29bn takeover won’t be finalised until the end of the year even if Newcrest shareholders vote in favour of the friendly tie-up, but the deal took a major step forward on Monday when Newcrest’s board recommended shareholders accept the all-scrip bid from the world’s biggest gold miner.

Mr Palmer told The Australian that Newmont expected to realise about $US500m ($750m) in savings from synergies across the combined portfolio, along with $US2bn in cash flow gains from “portfolio optimisation”.

That will include asset sales, but Mr Palmer said Newmont would have a close look at all of its options with a focus on looking over the copper aspects of the portfolio.

“One of the really exciting things about the new Newcrest pipeline is that it’s got gold, a lot of gold, but a good exposure to copper in it as well – which is going to be, as we all know, a very, very important metal for the world going forward,” he said.

“That’s something that will be part of our considerations as we think about the organic project pipeline that this combined portfolio is going to have. It’s going to be an embarrassment of riches in terms of what we’ve got available to us to develop going forward.”

Newcrest has been at pains to emphasise its copper-rich options over recent months, including existing production at its Cadia mine in NSW as well as the Wafi-Golpu copper-gold project in Papua New Guinea and its plans to build a block cave operation at Red Chris in Canada.

The friendly deal now looks almost certain to go ahead, after Newmont upped its bid for Newcrest in April, offering 0.4 shares for each Newcrest share on offer – a 10.1 per cent improvement on its February position on a pure scrip basis.

Newmont has also offered to allow its Australian target to pay a special dividend of up to $US1.10 a share if the deal closes – without reducing its offer – to allow Newcrest to extinguish its remaining franking credits.

On current values of Newmont’s scrip, the deal gives Newcrest an implied equity value of $26.2bn and an enterprise value of $28.8bn – in early April that was an implied equity value of $29.4bn and enterprise value of $32bn.

Newcrest investors will emerge owning 31.1 per cent of the combined group if the deal ­completes.

While an independent expert value will still be required, Newcrest chairman Peter Tomsett said the period of mutual due diligence over the last month had shown the merger would deliver significant value to the company’s shareholders.

“This transaction will combine two of the world’s leading gold producers, bringing forward significant value to Newcrest shareholders through the recognition of our outstanding growth pipeline,” Mr Tomsett said.

“The Newcrest board is unanimously recommending the proposal. We are very proud of the entire Newcrest team for building a world-class metals business, which will form a key part of the combined group. We believe our shareholders and other stakeholders can look forward to an exciting and prosperous future.”

The transaction will still need approval from the Foreign Investment Review Board – along with the regulator tick-off in Canada and PNG – and the approval of a shareholder vote to be held later this year.

Newmont said the company believed it could achieve about $US500m in pre-tax synergies by combining the two companies, cutting Newcrest’s ongoing costs by introducing its own operating processes and exploiting Newmont’s buying power.

The company said it expected to realise an additional $US2bn in incremental cash flow from “portfolio optimisation opportunities”.

Newmont CEO Tom Palmer.

Despite widespread speculation Newmont might regard Newcrest’s Telfer operations as surplus, Mr Palmer told The Australian the company wanted to take the time to properly evaluate the Havieron joint venture with Greatland Gold before it made any decisions.

“We know Telfer well, because we built it back in the 1970s,” he said. “Telfer’s existing operations are starting to work towards the end of its life, but it’s got the Havieron deposit just up the road. So as we look at Telfer in the Newmont portfolio, we really want to step back and have a look at the potential of that Havieron deposit and what it might look like in terms of the life and the potential scale.

“But you’ve got an operation there with very good infrastructure in a very good part of the world up in the northern Pilbara, with a new deposit just up the road. We want to make sure we ­really understand that.”

Mr Palmer said Newmont would undoubtedly try to slim down parts of its global portfolio if the merger with Newcrest went ahead, but said the bulk of the $US2bn planned cash flow benefits from the deal would come from rejigging the sequencing of the company’s portfolio pipeline.

“We’ve got some really good projects in the Newmont pipeline and Newcrest brings some great projects as well, in Wafi Golpu in Papua New Guinea and Red Chris up in Canada,” he said.

“What we’ll be looking at is project sequencing – the level of cash that goes towards building projects, managing project execution risk, and then thinking about how those projects line up next to each other and in what order. That’s still work out in front of us.”

Mr Palmer said the Newcrest pipeline’s potential to generate additional copper production ensured they would “present very well as we go through that ­exercise.”

Mr Palmer played down the potential for savings from job losses among Newcrest’s staff, saying the bulk of the ­planned $US500m in “synergy” savings would come from supply chain factors and productivity improvements.

He said about $US100m would also come from general and administrative savings, including a reduction in board, compliance and other costs associated with corporate and listing overheads, but Mr Palmer said Newmont was not likely to make any significant changes to the company’s operational workforce.

“A lot of those people will be an important part of the business going forward, and an important part of helping us deliver on those $500m of synergies,” he said.

The Newcrest board’s recommendation of the takeover is subject to no superior offer emerging for the company, with Newmont agreeing to pay a $US375m break fee if it pulls out of the deal, and Newcrest liable for a $US174m payment if it exits the arrangement.

Newcrest expects to offer shareholders a vote on the deal in September or October, with the deal likely to close in 2023.

Its shares closed up 1.5 per cent at $28.68.

Originally published as Newcrest board approves $29bn Newmont takeover