Two major gold mining companies are in discussions to form a global leader in producing the precious metal. The largest gold miner in the world, Newmont, based in the US, has made an all-share bid for its Australian counterpart Newcrest, valuing the company at nearly $17 billion. This indicative offer is part of a trend of consolidation in the fragmented gold industry that started when Barrick Gold, the second largest gold producer, purchased Randgold for $6 billion in 2018.
As a result of the news, shares of Newcrest increased by 10% to reach their highest level since May. This $17 billion offer by Newmont for Newcrest would be the biggest M&A deal of the year so far, surpassing the $7.5 billion acquisition of Evoqua by Xylem. The offer includes a 21% premium over Newcrest’s last closing share price.
Tom Palmer, the CEO of Newmont in Denver, stated that the deal is subject to approval from Newcrest’s board and regulators. He believes the combination of the two companies would be beneficial to their shareholders, workforce, and communities. The merge would reunite the companies after being separated for almost 25 years.
The potential merger would put four of the five largest gold mines in Australia under one company, requiring government approval. Rising costs in the mining sector, production issues for gold, and volatile gold prices due to rising interest rates have prompted more companies to pursue deals for increased scale. The focus has shifted to assets in stable countries such as Australia and Canada.
Newcrest, with mines in Australia, Canada, and Papua New Guinea, has been a target for major gold companies such as Newmont and Barrick in recent years, especially after its stock dropped in value. The CEO stepped down in December and the company is still without a permanent replacement. The new proposal, which would offer 0.38 Newmont shares for every Newcrest share, would also involve listing Newmont on the Australian Stock Exchange. Newmont’s shareholders would own 70% of the combined company, with Newcrest’s shareholders owning 30%.
However, the largest shareholder of Newcrest, Allan Gray, has expressed their disapproval of the takeover terms proposed. The CIO stated that there is dilution risk and the merger ratio is not favorable. Newcrest, advised by JPMorgan and Gresham Advisory Partners, has not ruled out the possibility of a new bid, but has stated that it has already rejected one bid as being too low.