Gold giant Newmont’s $16.9bn bid for Australia’s Newcrest clouded by deal doubts

melbourne
Reuters
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Leading gold producer Newmont (NEM) Corp said it had made a $16.9 billion offer to Australian counterpart Newcrest (NCMGF) Mining to build a global gold giant, although investors and analysts said he undervalued the target as part of a management change.

Newcrest is in the hunt for a new boss, with former chief executive Sandeep Biswas stepping down in December, while global interest rates are set to peak this year and fall, sharpening the outlook for gold prices.

The Australian gold miner said it was considering the all-stock bid in a filing that was a response to media speculation over the weekend. Initial reactions from shareholders are that they want a higher price, according to a person familiar with Newcrest’s deliberations.

“A good litmus test for a reasonably priced transaction is when both seller and buyer feel somewhat aggrieved by selling too low or paying too much,” said Simon Mawhinney, chief investment officer at Allan Gray, the Newcrest’s largest shareholder with a 7.36. % stake. “It is not clear to me that this type of symmetry exists with these terms of the agreement.

Newcrest shares jumped 14.4% to 25.60 Australian dollars ($17.77), the highest since May 2022, but remained below the current implied offer price of $27.16, which suggests that investors were unconvinced the deal would materialize. The shares closed up 9.3% at A$24.53.

Newmont, which is already the world’s largest gold producer by market capitalization and ounces produced, said the combination represented “a powerful value proposition.”

Newcrest’s operations include its blue chip Cadia asset in Australia, an expanding presence in North America and Papua New Guinea, and growth potential in copper, highly prized as a key to the energy transition. BHP Group (BBL) offered $6.4 billion to Australian copper miner Oz Minerals (OZMLF) Minerals in December.

Newmont’s proposal is being made via an agreed plan of arrangement that is expected to be recommended by Newcrest’s board of directors and subject to due diligence, various regulatory approvals and a shareholder vote that could span months. .

The indicative offer implies a premium of 21% over Newcrest’s last closing value of A$22.45, significantly lower than the traditional buyout premium of 30%, noted Morningstar analyst Jon Mills, who values ​​Newcrest at around AU$31 per share.

Newcrest shareholders would receive 0.380 Newmont share for each Newcrest share, giving them a 30% stake in the expanded miner. This is a 4.7% improvement on a previous offer of 0.363 per share which Newcrest had already rejected for not providing enough shareholder value, Newcrest disclosed on Monday.

If investors don’t support the deal, the board will be under pressure to improve Newcrest’s value, perhaps by scrapping assets like Havieron and Telfer in Australia, or Lihir in Papua New Guinea, said Barrenjoey analyst Dan Morgan.

Newcrest is expected to announce a new chief executive this year after Biswas announced his retirement after eight years.

Sherry Duhe, formerly chief financial officer, who joined Newcrest in February last year, is acting chief executive while a global internal and external search for a replacement is underway.

Newcrest has been seen as a target in recent years given its lackluster performance, but only a handful of buyers are big enough to take it off, said an investment banker who was not authorized to speak publicly about the question.

The all-equity nature of the offer means the timing is more likely to be tied to vulnerability in Newcrest’s leadership than a big call on the price of gold, but it likely also reflects a constructive view on the precious metal, added the banker.

Risks are mounting for gold to break higher, with Morgan Stanley in a Jan. 16 note noting that its macroeconomists now forecast lower rates and a weaker U.S. dollar, in tailwinds for the metal.

Morgan Stanley is looking to a bull case for spot gold hitting $2,160 in the fourth quarter from $1,866 an ounce.