US gold mining giant lobs $24b takeover bid for Newcrest

The head of the world’s largest gold miner has pitched its $24 billion takeover offer for Australian rival Newcrest as an attractive opportunity for their workers,shareholders and communities to share in the benefits of putting together two leading global businesses.

Shares in ASX-listed Newcrest soared more than 9 per cent on Monday after US-based Newmont Corporation launched a bid over the weekend to buy all of Newcrest’s shares at a 22 per cent premium to its previous closing price.

Newcrest’s flagship Cadia gold mine near Orange,NSW.

Newcrest’s flagship Cadia gold mine near Orange,NSW.Rob Homer

The offer,valuing the company at nearly $US17 billion ($24.5 billion),would entitle Newcrest shareholders to receive 0.38 Newmont shares for each Newcrest share they own,the companies said. Newcrest disclosed that the offer was the second non-binding takeover proposal it had received from Newmont following an earlier bid at an exchange ratio of 0.363 Newmont shares for each Newcrest share.

Tom Palmer,the Australian-born president of Newmont,welcomed the Newcrest board’s decision to consider the revised proposal,which he said offered a “compelling opportunity” for both businesses.

“We believe a combination of Newmont and Newcrest presents a powerful value proposition to our respective shareholders,workforce and the communities in which we operate,” Palmer said on Monday.

“The proposed transaction would join industry-leading portfolios of assets and projects to create long-term value across the combined global business,and we welcome the consideration of Newcrest’s board of directors.”

Newmont,which is based in Denver,Colorado,is the world’s largest listed gold-mining company. The New York-listed group has operations across the globe spanning gold,copper,silver,zinc and lead,including two major Australian gold mines – Boddington in Western Australia and Tanami in the Northern Territory.

Newcrest operates gold and copper mines in Australia,Papua New Guinea and Canada. In recent years,the company has focused heavily on expanding its presence in the Americas,investing in Ecuador-focused gold and copper explorer SolGold,buying a majority stake in Canadian gold mine Red Chris and acquiring Toronto-listed Pretium Resources,which owns the Brucejack mine.

Newcrest on Monday said the board and its financial and legal advisers were considering the indicative proposal from Newmont,which remained subject to conditions and approvals from shareholders and regulators.

Simon Mawhinney,chief investment officer at institutional investor Allan Gray Australia,which owns about 8 per cent of Newcrest shares,said it was not clear to him yet whether signing a deal with Newmont would be the best option for the company.

“We believe a combination of Newmont and Newcrest presents a powerful value proposition to our respective shareholders,workforce and the communities in which we operate.”

Newmont president Tom Palmer

“Newcrest could quite happily mine the reserves that it has,generate the free cash flow we expect it to and distribute it to shareholders,” he said. “Just because there is a deal out there,it doesn’t mean a deal needs to be done.”

Mawhinney said a “litmus test” for a good takeover deal was one in which the buyer and seller “both felt aggrieved” – the seller feeling it is being sold too cheaply,and the buying believing it is paying too much.

“In this deal,I don’t think we are there yet,” he said.

Analysts said Newmont’s approach would put pressure on the board to consider “all options” to encourage the market to ascribe greater value to Newcrest.

“In our view,options worthy of consideration include asset sales followed by a buyback and/or a de-merger of Lihir,” Barrenjoey mining analyst Daniel Morgan said.

Gold is widely seen as a “safe haven” commodity where investors often store wealth during times of political and economic uncertainty.

The price of gold set a new peak in 2020,hitting $US2075 an ounce,as investors rushed to the metal to hedge against the volatility of the coronavirus pandemic and fears of inflation caused by world governments unleashing trillions of dollars of stimulus.

While the gold price began to ease as economies gradually recovered from the depths of COVID-19,prices have rebounded and are now closing in on $US1900 an ounce again amid deepening concerns about soaring consumer prices and the economic volatility unleashed by the Russia-Ukraine crisis.

Betashares,which provides exposure to gold producers through its $61 million Global Gold Miners exchange-traded fund,said gold miners were increasingly seeking out assets in stable jurisdictions with lower sovereign risk,making countries like Australia and Canada “particularly attractive”.

“If Newmont’s bid for Newcrest proceeds,it would likely mark a significant shift in the Australian gold industry and will see many of our largest gold mines being held by overseas listed companies,” Betashares senior investment strategist Cameron Gleeson said.

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Nick Toscano is a business reporter for The Age and Sydney Morning Herald.

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