Newmont makes ‘best and final’ bid for Newcrest

The world’s largest gold producer Newmont (NYSE: NEM; TSX: NGT) has upped its bid for Australia’s Newcrest Mining (TSX: NCM; ASX: NCM) to US$21.2 billion from the original implied value of US$17 billion, prompting speculation it might agree to a sale this time.

Newmont said the non-binding offer, which it announced in a statement after market close on Monday, is its “best and final” bid.

BMO Capital Markets analyst Jackie Przybylowski says the improved bid gives Newcrest’s board more to consider.

“The transaction is more likely to be completed, in our view,” said Przybylowski in an overnight note to clients. “… [it] continues to be meaningfully accretive to our estimates at the increased exchange ratio.”

According to Reuters, the revised offer is now supported by major Newcrest shareholders Allan Gray and Argo Investments.

Newmont is now offering Newcrest shareholders 0.4 shares per Newcrest share held, up from the previous paper offer of 0.38 shares for each. With the sweetened offer, the Newcrest board has also been given the right to fund and pay its shareholders a special dividend of US$1.10 per Newcrest share.

The new bid represents a 46.4% premium to Newcrest’s share price on Feb. 3, before the original proposal was announced and summarily rejected.

The proposal appears to be supported by Newcrest as well. Its board has resolved to allow Newmont access to its data room to conduct due diligence in anticipation of receiving a binding proposal.

The due diligence is expected to be completed within about four weeks, coinciding with the anticipated release of Newmont’s first-quarter operating and financial results.

Canaccord Genuity’s mining team sees the takeover bid as rational. In mining analyst Carey MacRury’s view, Newmont remains the most logical acquirer of Newcrest among the North American senior producers. Its considerable geographic overlap in Australia and Canada, focus on sizeable, long-life assets, and premium valuation all count toward the deal’s attractiveness.

Biggest gold major in the making

Newcrest is Australia’s largest gold producer and the fourth largest globally by market cap, with full-year 2023 guidance (at the mid-point) of 2.3 million oz. gold and 320 million lb. copper.

“A Newmont-Newcrest combination would solidify Newmont’s position as the world’s largest gold producer with pro forma attributable gold production of over 8 million oz. gold and almost double that of Barrick Gold (TSX: ABX; NYSE: GOLD), the second largest producer,” said MacRury in a note to clients on Tuesday.

Including byproduct production, Newmont’s total gold-equivalent output would increase to about 10 million oz. from about 7 million oz. gold. Newmont’s production base in Australia would increase by about 1 million oz. gold per year to 2.4 million oz. and in Canada to about 1.1 million oz. from 700,000 ounces.

MacRury also notes that Papua New Guinea would be a new jurisdiction for Newmont but would represent less than 10% of its pro forma gold output. He expects Newmont could sell off some of the smaller assets in the combined portfolio.

Most significantly, MacRury flags the transaction as adding significant long-life assets to Newmont’s portfolio.

Newcrest’s assets include Cadia in Australia, which has more than 30 years of reserve life; Lihir in Papua New Guinea, with more than 20 years left; and a 70% interest in the Red Chris mine in B.C., with an estimated underground mine life of 31 years. Newmont would also be able to leverage Newcrest’s experience in block caving.

The analyst also finds the proposed acquisition to be about 5% accretive to Newmont’s net asset value metric and relatively neutral to its near-term financial metrics based on consensus estimates. He sees the transaction as slightly dilutive on gold production per share but neutral on a gold-equivalent basis factoring in Newcrest’s more than 300 million lb. of copper production.

At $67.95, Newmont shares in Toronto have lost more than 34% in value over the past 12 months, testing $51.44 and $108.98 over the timeframe. It has a market capitalization of $54 billion.

Newcrest’s Toronto-quoted equity is at $26.87, up 2% in the 12 months, achieving a respective low and high of $13.81 and $27.18. It has a market capitalization of $24.3 billion.