According to anonymous sources, Newmont Corporation has been granted partial access to the corporate records of Newcrest Mining Ltd, its Australian rival.
This could indicate that the US-based company is considering making a new offer to acquire Newcrest, which would result in the largest gold industry takeover in the world. The limited due diligence process is happening a few weeks after the management of the Melbourne-based mining company rejected Newmont’s $17 billion proposal. The sources requested anonymity since the information is not yet public.
In mid-February, Newcrest Mining Ltd. rejected Newmont’s all-stock offer, stating that the company is worth more than what the Denver-based suitor proposed. However, investors don’t see any viable alternative buyers that could challenge Newmont’s bid. Barrick Gold Corp., the world’s second-largest gold producer, has no plans to make a rival offer, while Agnico Eagle Mines Ltd., the third-largest gold miner, is occupied with finalizing its second major gold takeover in the last 13 months.
Newmont’s efforts to acquire Newcrest occur as gold miners face declining production, more difficult-to-mine deposits, and higher input expenses. These industry challenges are viewed as a catalyst for more mergers and acquisitions as companies aim to boost production and increase efficiencies by taking advantage of economies of scale.
According to a source, at least one top investor has cautioned Newmont CEO Tom Palmer not to overpay. The negotiations could take several weeks or even months to reach a price that satisfies both sides, said Douglas Groh, a senior portfolio manager at Sprott Asset Management USA, in an interview.
“I believe a deal is inevitable, but I wouldn’t be surprised if Newcrest is still dealing with this in August,” said Groh, whose company holds Newmont shares.
In addition, Newcrest faces further difficulties due to the unexpected departure of its CEO in December.
According to Groh, there is a conspicuous lack of leadership at Newcrest, and the board should have disclosed a plan to demonstrate how they intend to create value.
However, Newcrest has rejected these allegations and affirmed that the executive team possesses the strategic, financial, commercial, operational, project delivery, and innovation capabilities required to produce results. The company’s investors are hopeful that it can convince its suitor that it is worth more than the initial offer.
With five gold mines across three continents and a quarter of its revenue derived from copper, Newcrest is an attractive acquisition target. Meanwhile, Newmont is seeking to diversify its portfolio with greater exposure to the energy-transition metal due to a prolonged gold slump.
Simon Mawhinney, the chief investment officer at Allan Gray, Newcrest’s second-largest shareholder, acknowledges Newmont as a good company but believes that Newcrest is equally impressive. He thinks that Newmont needs to improve its offer, either by increasing the price or by offering more shares, to secure the deal. Newmont has not responded to requests for comment via email and phone.
Newcrest’s spokesman stated that while it is ultimately up to Newmont to submit a revised proposal, Newcrest is in a formidable position with its portfolio of high-margin mines, superior organic growth pipeline, and substantial and increasing exposure to copper.
Sources familiar with the matter stated that the US mining company has expressed interest in acquiring Newcrest for a while, with both Newcrest and Canada’s Kinross Gold Corp. reportedly among its top takeover targets. However, the American company saw more potential synergies and better copper access with the Australian producer.
The opportunity to make a bid for Newcrest arose when Sandeep Biswas vacated the top position after eight years, and Sherry Duhe, the Chief Financial Officer, was appointed as interim CEO. According to insiders, top shareholders have been firm in their stance that Duhe should not be made permanent CEO. They argue that the company requires a leader with a mining background, whereas Duhe’s expertise is in finance and energy.
Newcrest has announced that it is currently undertaking a CEO search process.
