Newmont makes US$17B takeover bid for Newcrest

Newmont Mining (NYSE: NEM; TSX: NGT), the world’s largest gold producer, is seeking to build a global gold superpower by approaching Australia’s top miner of the yellow metal, Newcrest Mining (ASX, TSX: NCM), with a US$17 billion takeover offer.

If successful, the deal would be one of the biggest in Australian history, though initial feedback from analysts and shareholders suggests that Newmont will have to improve its bid.

It would also increase Newmont’s footprint in copper, a metal which has soared in popularity and price recently due to its use in renewable energy and electric vehicles as economies decarbonize.

The offer is already 4.7% higher than a previous proposal rejected by Newcrest, as the Denver, Colorado gold giant disclosed in a statement.

Newcrest said on Monday it was considering the proposal. The miner is in the midst of finding a new chief executive officer as previous boss Sandeep Biswas stepped down in December.

BMO’s analyst Jackie Przybylowski said in a research note on Monday that while the offer will likely come as a surprise to the market, given Newmont’s generally conservative approach to growth recently, it should be viewed as positive.

Newcrest’s assets fit well with Newmont’s existing portfolio, she noted. Additionally, the larger size of the combined company is consistent with Newmont’s recent comments around responsibly pursuing size, Przybylowski wrote.

Goldman Sachs also reacted positively to the news, highlighting that the integration of Newcrest into Newmont’s portfolio would provide the U.S. gold producer a path to “immediately and substantially” lift its output, considering the company’s “flattish production outlook” for the next two years on a standalone basis.

“[The deal also] increases [Newmont] exposure to copper and expands its footprint in locations such as Australia and Canada in particular, that the miner is comfortable with,” the bank said in a note to clients.

Morningstar analyst Jon Mills noted the offer may push other major gold miners to join the race for Newcrest, given the quality of its assets.

“We think Newcrest is now in play, but if a deal is to be done, it will likely need to be at a higher price,” Mills wrote.

Barrick not interested

Barrick Gold’s (TSX:ABX; NYSE:GOLD) chief executive, Mark Bristow, told Financial Times on Monday that his company, which in 2019 attempted an unsuccessful hostile takeover of Newmont, did not plan to table a rival offer for Newcrest.

“It doesn’t make sense right now,” he said. “Growing bigger for the sake of growing bigger is not a strategy.”

Newmont’s offer implies a 21% premium to Newcrest’s share price before the bid was announced.

Its proposal is via an agreed scheme of arrangement that would need to be recommended by the Newcrest board and subject to due diligence as well as shareholder vote that could stretch out for months.

The Australian government would also have to approve the transaction as it would put four of Australia’s five largest gold mines under the control of one company.

Newmont shareholders would also have to approve the deal.

Its shares dipped by more than 3% in Toronto on Monday, reaching $64.42 apiece, in a 52-week window of $51.44 and $108.98, giving it a market capitalization of $51.2 billion.

Newcrest’s shares jumped as much as 14.4% in Sydney on Monday to A$25.6, the greatest daily increase since 2008 and highest level since May 2022. They closed at A$24.53 each.

The company currently operates the large open-pit and underground Telfer gold-copper mine in Western Australia’s Pilbara region and is the top gold producer in British Columbia, Canada since the 2019 acquisition of the Red Chris copper and gold mine.

A year ago, the company expanded its footprint in Canada with the takeover of Pretium Resources, which handed it the Brucejack gold mine.

Newcrest also operates the Lihir and Hidden Valley mines in Papua New Guinea.

The combination of the two gold miners would bring them back together after almost 25 years. Melbourne-based Newcrest was established in the 1960s as Newmont’s Australia arm and it spun out in 1990, after it merged with BHP’s historic gold assets.

Gold prices have experienced a sustained period of strength since 2020 and have increased nearly 15% since November last year.