Gold M&A heats up as Newcrest set for biggest deal of the decade

Almost 60 years since they established an Australian subsidiary that turned into the country’s biggest gold miner, Newmont Corporation (NYSE: NEM) wants to bring Newcrest Mining (ASX: NCM) back under its control in what would be one of the biggest gold consolidations in Australian history. 

Almost 60 years since they established an Australian subsidiary that turned into the country’s biggest gold miner, Newmont Corporation (NYSE: NEM) wants to bring Newcrest Mining (ASX: NCM) back under its control in what would be one of the biggest gold consolidations in Australian history. 

The $24.4 billion offer comes as some of their largest investors have labeled the nature of the bid as opportunistic. Allan Gray CIO Simon Mawhinney, who controls 7.3% of NCM, has highlighted that the deal has sprung up when Newmont shares are expensive and Newcrest stock is depressed. It’s an all-scrip deal, with 0.38 Newmont shares being offered for every one Newcrest share – valuing NCM at $27.4 according to Newmont’s Friday night (3 February 2023) closing price in the US

It was only less than 5 years ago that the world’s two biggest gold miners – Barrick Gold and Newmont Corporation – were battling for consolidation opportunities in the industry. Another mining giant, Goldcorp, was gunning for Newcrest hard enough to deter any further bids from Barrick, who ended up in a US$19.4 billion merger with Rangold instead. Right before a decision had to be made on the deal, Newmont acquired Goldcorp. NCM shares went on to double in months after the merger fell through, heavily spurred on by higher gold prices.

Doubts are circling around competitive bids, and a break up via asset sales could prove to a more lucrative option. Given the size of the potential deal, there are few suitors capable of pulling it off. Barrick have already ruled themselves out, with their CEO Mark Bristow commenting that “growing bigger for the sake of growing bigger is not a strategy”. Ironically, the 2018 Rangold deal was widely regarded about scale and offered few operational synergies. Perhaps they’ve learned their lesson since their 2006 US$10.4 billion acquisition of Placer Dome and 2011 $US7.3 billion takeover of Equinox Minerals. Both deals ended in tears as Barrick suffocated on the debt, and they ended up selling off the assets for peanuts.

In the current interest rate environment, it’s not surprising to see an all scrip deal for Newcrest.

Australian investment banking teams are scrambling to organise competing bids for what could most likely be the biggest gold deal of the decade. JP Morgan and Gresham Partners are advising Newcrest, while Newmont has Bank of America, Centerview Partners and Lazard in its corner.

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