Newmont Corporation is one of the world’s largest gold mining corporations, based in Greenwood Village, Colorado, with a current revenue of $11.487 billion and over 14,300 employees. The company clearly has its eyes set on growth with a $16.9 billion offer to buy out Newcrest Mining Ltd, its Australian peer. However, many analysts and investors see this as a low-ball offer, spreading the word that Newmont Corp may be open to increasing its initial bid.
If the deal goes through, Newmont will become an unstoppable gold mining force. As the world’s current top producer, this added Australian mining acquisition would allow the company to produce nearly twice as much as its closest competition, Barrick Gold Corp.
Information about the deal only leaked a few days ago in Australia before Newmont could respond to the uproar in the gold mining community. The company continues displaying confidence in the deal going through. According to a close source, Newmont may increase its initial bid, if necessary, though the company does not fear any outbidding from the competition.
The idea of a bidding war created temporary dips in Newmont’s performance earlier this week. On Monday, the company’s shares fell by 4.5% after the release of this news, closing the day at $47.60.
One of Newmont’s largest shareholders, Flossbach von Storch, a German asset management firm, responded to the proposal positively, agreeing that the merger would work well. In the response, Flossbach von Storch included that an increase in the initial proposal would not be necessary. An investment manager from the firm, Simon Jäger, stated “We don’t want to see big premiums paid,” and that they expect to see a more “disciplined” approach toward the merger and acquisition process.
In the midst of this movement, Newcrest is currently looking for a new chief executive officer after the former CEO, Sandeep Biswas, resigned in December. Newcrest should be announcing its new CEO sometime this year, though in the meantime, Sherry Duhe, the chief financial officer, will be acting as the interim CEO.
At the same time, gold prices continue rising as interest rates skyrocket this coming year. If the deal goes through, it will be the largest mining acquisition in Australia’s history and the third-largest corporation purchase.
So what does Newcrest think of this proposal? The mining company, which Newmont previously owned before 1990 before de-merging, stated that it’s considering the offer. Newmont’s only statement to the public was that the merger would be “a powerful value proposition.”
Newcrest ultimately must consider how its shareholders will respond, and so far, it seems like they want a higher offer. Newcrest’s largest shareholder with a 7.4% stake, Simon Mawhinney, Allan Gray’s chief investment officer, responded, “A good litmus test for a reasonably-priced deal is one where both seller and buyer feel somewhat aggrieved by selling out too low or by paying too much. It’s not clear to me that this kind of symmetry exists with these deal terms.”
Unlike Newmont, Newcrest’s shares skyrocketed on Monday by 14.4%, reaching the highest it’s been since May 2022. While the shares hit a high of $25.60 on Monday, they did not reach the $27.16 implied offer price. Newmont’s offer implies a premium of 21% to the share price, which is below the 30% traditional offer.
In 2019, Newcrest turned down an $18 billion offer from Barrick. The current offer on the table from Newmont would give shareholders 0.38 Newmont shares per Newcrest share, offering a 30% stake in the expanded corporation. This deal shows a 4.7% improvement from the previously rejected offer.
The idea behind this merger is not a shock to the gold mining community, given Newcrest’s subpar performance in recent years. Only a few corporations have the funding to pull off an acquisition of this size, so the competition isn’t exactly high. A few suspect that the timing of this offer may have something to do with Newcrest’s current leadership vulnerability, though others just see a constructive step in precious metal industry changes.
Neal Froneman, the CEO of Sibanye-Stillwater Ltd and a peer of Newmont, explained the situation as not bidding on a gold company but creating a “geographically diverse green metals company.”
With the forecast of a weakening U.S. dollar, gold prices should continue rising in 2023. While the news of this acquisition may impact share prices, it should not create large rippling effects on supply and demand. Gold remains a safe haven for many investors seeking a steady and predictable way to secure their funds.