- Deal would put Newmont neck-and-neck with global leader Barrick in proven gold reserves
- Gold industry has undergone a wave of consolidation in recent years
- Investors may expect a higher price for Newcrest
Denver-based gold miner Newmont Corp. (NEM) said it proposed a $17 billion all-stock buyout of rival Newcrest Mining, Australia's largest gold producer, in a deal that would mark this year's biggest U.S. merger.
The deal would significantly close the supply gap between Newmont, the world's largest gold miner by market value, and Toronto-based global leader Barrick Gold, the world's leader in gold reserves. The two formed a small joint venture four years ago after Newmont rejected a takeover bid from Barrick.
The gold mining industry, struggling to find new sources for a metal desired as both a financial asset and luxurious commodity, has undergone a wave of consolidation in recent years. Rising costs in the wake of the pandemic have underpinned that trend.
Newmont's proposal comes as global demand last year reached the highest level in 11 years, with the price of gold surging 14% in the past three months. Morgan Stanley projects gold could rise another 17% this year to $2,200 per troy ounce.
|World's Most Valuable Gold Mining Firms|
|1. Newmont Corp.||$37B|
|2. Barrick Gold||$33B|
|3. Agnico Eagle Mines Ltd.||$24B|
|4. Wheaton Precious Metals Corp.||$18B|
|5. Gold Fields Limited||$10B|
Sources: Yahoo! Finance, InsiderMonkey.com
Not a Done Deal
Newmont said it offered 0.38 of its own shares for each outstanding share of Newcrest. Newmont would own 70% of the new entity, with Newcrest keeping the remaining 30%.
Newcrest's board reportedly rejected a previous Newmont bid of 0.363 per share but hasn't made a decision regarding the latest one, which values Newcrest's shares at $18.80, representing a 22% premium to their closing price Friday.
Newcrest's shares gained 9.3% Monday to $16.93, indicating investors may suspect higher bids remain possible. Newmont's shares fell as much as 5.6%.
Newcrest's largest shareholder doubted the necessary "symmetry" exists between the two firms' price expectations. In addition, Jon Mills, an analyst with Morningstar, stated in a research note to clients that other gold miners may find Newcrest attractive because of 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 in his note.
The takeover bid comes as Newcrest searches for a new chief executive. The company announced in December that Sandeep Biswas, its CEO for the past eight years, would leave the company. Chief financial officer Sherry Duhe will serve as interim CEO while the company determines Biswas' successor.
Shoring Up Reserves
Global gold miners have faced a challenging environment since the pandemic eased as surging wages and rising energy prices have pushed labor and production costs higher.
At the same time, they're having less success finding new deposits. Of the world's gold that miners have discovered since 1990, they've only found 6% in the past decade, according to S&P Global Market Intelligence.
That difficulty has fed large gold miners' appetites for finding deals to increase their proven but untapped reserves. Newmont has 96 million in gold mineral reserves. Buying Newcrest would boost that figure to about 155 million, just shy of Barrick's 160 million,
Barrick attempted to buy Newmont in 2019, shortly after the latter bought Barrick's biggest rival in Canada, Goldcorp Inc., for $10 billion. Newmont rejected the deal but formed a joint venture with Barrick in Nevada to cut costs.
Late last year, Canada's Agnico Eagle and Pan American Silver Corp. announced a $4.8 billion joint bid to buy Toronto-based Yamana Gold.
If completed, the latest proposal would be more than double Emerson Electric's planned purchase of National Instruments for $7.6 billion, making it this year's largest U.S. merger deal.
InsiderMonkey. "5 Biggest Gold Mining Companies in the World"
The Wall Street Journal. "Newmont Proposes $17 Billion Takeover of Australia's Newcrest Mining"
Gold.org. "Gold spot prices"
The Wall Street Journal. "Gold Prices Could Move to $2,200/toz in 2023, Morgan Stanley Says"
The Sydney Morning Herald. "In gold mega deals, size really does matter"
Reuters. "Newmont makes $16.9 billion offer for Australia's top gold producer Newcrest"
Newcrest.com "Annual Mineral Resources and Ore Reserves Statement -- as at 30 June 2022"
Yahoo! Finance. "Agnico Eagle Mines - Pan American Silver Offer Around $5B to Buy Yamana Gold"
Intellizence.com. "Largest Mergers and Acquisition (M&A) Deals Data"