Newmont offers to buy Australia’s biggest miner amid gold merger spree

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Newmont Corp., the world’s largest gold miner by output, has offered to buy Newcrest Mining Ltd., Australia’s largest gold miner, for the equivalent of US$17 billion, accentuating the industry’s desire to consolidate amid rising costs and a dwindling number of high-performing gold mines.

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The takeover would ripple into Canada, as both companies operate mines there and are listed on the Toronto Stock Exchange. If the deal goes through, Newmont could strengthen its position in British Columbia by acquiring Newcrest’s Red Chris mine, situated about 1,700 kilometres north of Vancouver, and its Saddle North project, both of which are gold and copper operations, and its Brucejack gold mine, which is located about 950 kilometres north of Vancouver.

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Newmont already owns the Éléonore gold operation in northern Quebec and the Musselwhite and Porcupine operations in Ontario.

“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,” Tom Palmer, chief executive of Denver-based Newmont, said in a press release dated Feb. 5.

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Each Newcrest shareholder would receive 0.38 Newmont shares for each Newcrest share, the Australian miner said in a press release on Feb. 6 that confirmed Newcrest’s management is considering the offer.

The company also said this was Newmont’s second offer that followed a bid of 0.363 Newmont shares for each Newcrest share, which Newcrest rejected.

Newcrest shares were trading at around $20 per share when markets closed last week, little changed from a year earlier, while Newmont’s shares closed at around $67 in Toronto, down about 17 per cent from the same period in 2022.

Newmont’s bid to get even bigger extends a series of consolidations in the gold sector in recent years. Late last year, Yamana Gold Inc. agreed to sell itself to two Canadian rivals, Agnico Eagle Mines Ltd. and Pan American Silver Corp., for about US$4.8 billion.

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Yamana’s outgoing executive chair Peter Marrone told The Financial Post last month that he expects a wave of gold mergers as executives and investors seek to maintain margins amid higher production costs and declining grades of the metal.

Resource industries are on the front lines of the climate challenge, whether it be coping directly with extreme weather, or indirectly through rising costs associated with adjustment and policies such as carbon taxes. Gold miners face an additional layer of difficultly because their deposits are yielding less ore that’s dense with gold. Lower grade mines can still be profitable, but only if extraction costs are lowered.

Aside from the sale of Yamana, which has properties and mines in Canada, Brazil, Chile and Argentina, there have been at least eight notable combinations since 2018, when Barrick Gold Corp. and Randgold Resources Ltd. announced an $18-billion, zero-premium, all-share merger.

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Bank of Montreal analyst Jackie Przybylowski in a note to clients on Feb. 5 said Newmont’s bid would “surprise” the market but that it should be viewed as a positive.

“Newcrest’s assets fit well with Newmont’s existing portfolio, and the larger size of the combined company is consistent with Newmont management’s recent comments around responsibly pursuing size to ensure relevance,” she said.

Przybylowski added that Newmont might also divest some of its assets as Palmer in December had said that the company’s future acquisitions would be done with an aim to upgrade its assets.

“If that is the case, we could expect Newmont may divest assets either from the Newcrest or from its own portfolio,” said Przybylowski.

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