Gold Giant Newmont Raises its Bid to $19.5 Billion for Newcrest

This is the first time that Newmont Corp. NEM -0.55% has raised its takeover offer for Newcrest Mining Ltd. NCMGY 6.42% to around $19.5 billion, as it aims to make what could be the largest-ever merger and acquisition deal in the gold mining industry.

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Despite the fact that gold prices are rising as a result of heightened economic worries and stress in the global banking system, Newmont has decided to improve its all-stock bid for Newcrest at a time when gold prices are nearing a record high. It is widely known that Newcrest, Australia's largest listed gold miner, had previously rejected a bid from the U.S. company for an amount of around $17 billion.

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Newmont is now offering 0.400 shares of its own stock for each Newcrest share that is held, according to a regulatory filing made by Newcrest on Tuesday. The company also said that it has the option of paying a special dividend of up to $1.10 per share around the time a deal is completed.

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Upon assessing Newcrest's latest proposal, Newcrest said that it would open its books to Newmont in order to come up with a binding offer for the deal.

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Newmont's pursuit of Newcrest illustrates just how the gold industry is increasingly looking for deals to make at a time when it is struggling to make major discoveries of the precious metal at a critical time for the industry. A transaction worth $10 billion was carried out by Newmont acquiring Goldcorp Inc., a Canadian gold producer, in 2019. In the same year that Newmont formed a joint venture with its rival Barrick Gold Corp. in Nevada in an effort to lower costs, following the rejection of a previous offer from Barrick to purchase Newmont.

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The Colorado-based Newmont Mining Company, which is now the world's largest gold producer, said that a deal would add new mines in low-risk regions like Australia and Canada, as well as give them greater exposure to copper, an industrial metal that's expected to be in high demand as the world decarbonizes.

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“A new era is emerging in the mining industry, where companies must hold themselves to a higher standard of sustainability and long-term value creation in order to survive”, said Tom Palmer, Newmont's chief executive officer.

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Unless there is a rival bidder who emerges to take over Newcrest, Newmont believes its latest bid for the company is its best and final price. In the past, Barrick Gold has indicated that it would not be interested in making a competing bid for the Australian gold company.

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According to Newcrest, it was rejected by Newmont in February to receive 0.380 Newmont shares for every 1 Newcrest share. After a prior attempt to bid on the project was also rejected by the company, this was Newmont's second attempt.

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Newcrest said that the new offer represents an equity value of 29.4 billion Australian dollars, which is equivalent to $19.5 billion, and an enterprise value of A$32.0 billion. The combined company would be owned by Newcrest shareholders for approximately 31%, while Newmont investors would own the remainder of the company.

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Newcrest's stock price closed on Feb. 3 at A$22.45 a share, less than the implied value of A$32.87, which was set before Newmont became aware of its interest in the company. In Sydney, the stock of Newcrest rose by 5.1% to A$29.72 a share by midafternoon on Tuesday.

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Newcrest's largest shareholders have signaled their support for the proposal by expressing their interest in it.

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"There has always been a preference in our firm for the merger of Newcrest with Newmont, but we had previously been unenthusiastic when it came to the merger ratio," according to Simon Mawhinney, chief investment officer of Allan Gray Australia. "Combined with the franked dividend, this slightly improved merger ratio allows the scales to be leveled to a certain extent."

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By the end of December, Allan Gray and its sister company Orbis held a combined interest of 7.4% in Newcrest.

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As part of its plans to list on the Australian Securities Exchange, Newmont intends to apply for a listing, which will be good for shareholders like Allan Gray who wish to retain exposure to Newcrest's operations, according to Mr. Mawhinney.

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There has been a struggle by a gold miners for many years to add to reserves in low-risk countries, with many mines running out of gold that is accessible easily, as well as exploration campaigns yielding few large deposits that can be mined. As per S&P Global Market Intelligence, only 28 of the 341 major deposits discovered between 1990 and 2021 contain at least 6% of the gold that has been discovered since 1990, despite the fact that 341 major deposits were discovered between 1990 and 2021.

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With the addition of Newcrest's suite of gold-mining operations and growth projects, Newmont would be able to cement its position as the world's largest gold miner. A combined group of these companies would also have approximately 30% of their combined reserve base in copper, "which is considered to be a critical metal for reducing carbon emissions and facilitating the transition into a new energy economy," according to Newmont.

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Newmont's move comes at a time when Newcrest, which introduced Sandeep Biswas as its CEO in December, is set to leave the company after eight years at the helm. As Newcrest continues to search for Mr. Biswas' successor, its Chief Financial Officer Sherry Duhe has been named interim CEO.