Newmont Corp. made an approximately $17 billion bid to acquire the Australian company Newcrest Mining Ltd. aims to seal one of the most significant deals for the global gold mining industry, which is looking to make major new gold discoveries.
Newmont, based in Colorado and one of the world’s largest gold producers, has made a conditional, non-binding advisory offer to acquire Newcrest, Australia’s largest publicly traded gold producer. Newmont said it will offer 0.380 of its own shares for each Newcrest share.
The offer follows the US company’s previous approach of 0.363 Newmont shares for each Newcrest share. Newcrest executives rejected the proposal as too low. On Monday, Newcrest said it was considering the terms of the latest offer.
Newmont’s approach illustrates how producers try to make deals to increase their gold reserves, reduce costs, and improve shareholder returns. In 2019, Newmont acquired Canadian gold producer Goldcorp Inc. in a deal valued at $10 billion. That same year, Newmont and rival Barrick Gold Corporation formed a joint venture in Nevada to cut costs after Barrick’s earlier offer to buy Newmont was rejected.
Newmont said the companies were complementary and that the combined company, which would be owned 30% by Newcrest shareholders and 70% by Newmont, could “set the standard for sustainable and responsible gold mining.” Newcrest has mines in Australia, Canada, and Papua New Guinea.
“We believe the combination of Newmont and Newcrest provides a strong value proposition for our owners, employees, and the communities in which we operate,” Newmont CEO Tom Palmer said in a statement.
One of Newcrest’s major shareholders told The Wall Street Journal that if the deal goes through as planned, he would be surprised.
Simon Mawhinney, chief investment officer of Allan Gray Australia, said the all-share offer made sense, but the ratio did not seem fair as it stood given Newcrest’s cheap, long-lived assets. Allan Gray and its sister company, Orbis, had a combined 7.4% of Newcrest shares at the end of December, according to the miners’ quarterly report.
“It is certain that Newmont thinks they are buying something cheap with the current offer, and I commend them for that,” said Mr. Mawhinney. “But there’s a lot of water under that bridge.”
Newcrest’s low-cost mining network is one of the largest in the world, and Newmont is likely to like it, analysts say. Analysts at Australian investment bank Barrenjoey say the company’s assets could take 22 years to run out, significantly longer than most of its listed rivals. The company also plans to expand several of its activities.
The approach can eliminate the offers of competitors. “We see upside from the initial offering and view the current offering as a public offering portfolio that can attract alternative bidders to the market,” analysts at investment bank Jefferies said in a note to clients.
Gold is found in the earth’s crust in much smaller quantities than many of the most commonly mined materials. According to the World Gold Council, all the gold ever mined would fit into about a 22-metre cube.
In countries with low risk, it has been difficult for gold miners to add reserves for years because many mines have little easily accessible gold and few large deposits have been found during exploration campaigns. According to S&P Global Market Intelligence, of the 34f the 31 major deposits discovered between 1990 and 2021, only 28 were discovered in the last decade and contained only 6% of the gold discovered since 1990.
Gold producers also struggled with higher costs due to higher wages and higher energy prices.
Newmont’s approach comes amid upheaval at Newcrest, which announced in December that Sandeep Biswas was leaving the company after eight years as CEO. Newcrest has appointed chief financial officer Sherry Duhe as interim chief executive while it searches for Mr. Biswa’s successor.
Newcrest expects to produce between 2.1 and 2.4 million troy ounces of gold in June. It also produces copper, an industrial metal in demand among investors for its use in electric cars and renewable energy infrastructure. Newcrest expects to produce up to 155,000 metric tonnes of copper this financial year.
The price of gold has risen in recent months on expectations that the economic slowdown will force the Federal Reserve to slow interest rates, making the precious metal more attractive to investors. Higher interest rates usually weaken demand for gold, which does not generate income.
Newcrest said Newmont’s latest all-share offer represents an offer price of $27.16, or approximately $18.80 for each Newcrest share. That represents a 21 percent increase from the Feb. 3 closing price, the company said. Newcrest’s shares rose 9.3% to A$24.53 in Sydney on Monday.
