In the largest takeover offer this year, two of the most powerful gold miners in the world are discussing creating a global powerhouse to produce the precious metal.
The US-listed Newmont has launched an all-share offer for Newcrest, its Australian competitor. Newcrest is valued at nearly A$24bn ($17bn).
This could spark a bidding war between Newcrest and other rivals for Newcrest, Australia’s largest gold miner. Analysts believe that rivals, including Canada-based Agnico Eagle and Barrick Gold, are also seeking to consolidate this market.
Newcrest shares rose 10 per cent to A$24.74 in the news, their highest level since May.
According to Dealogic data, Newmont’s A$24bn offer to Newcrest would be the biggest M&A deal this year. It easily surpasses the $7.5bn acquisition by technology group Xylem of water treatment company Evoqua.
Newmont’s offer represents a 21 per cent premium to Newcrest’s closing share price.
Tom Palmer, the Australian chief executive at Newmont-based in Denver, stated that the deal was subject to approval by Newcrest’s board of directors and regulators. He stated that Newmont and Newcrest offer a strong value proposition to their respective shareholders, workers and communities.
After nearly a quarter century, the combination would bring together both companies. Newcrest, a Melbourne-based company, was founded in 1960 as Newmont’s Australia division. It was spun off in 1990 following its merger with BHP’s historical gold assets. The deal would see four of Australia’s largest gold mines under one company. It also requires approval from the Australian government.
The Australian Financial Review first reported the news of the talks.
Rising costs in Australia’s mining industry, production problems for gold, and volatility in the price of gold have all prompted more companies to look at deals to increase their scale.
Assets in countries like Canada and Australia that are politically stable have been under scrutiny. OZ Minerals, a south Australian nickel, copper, and the gold miner is in the final stages of being purchased by BHP for $6.4bn. Yamana Gold, Canada, is currently being sold after Agnico Eagle, Pan American Silver and $4.8bn were paid to acquire it.
Newcrest is an important target for the largest companies in the gold sector. It is home to mines in Australia and Canada, as well as Papua New Guinea. This company has been on both Newmont’s and Barrick’s radars in recent years. After its stock almost halved last September, it has been a target once again. The company has not yet named a permanent replacement for Sandeep Biswas, its long-serving chief executive.
Newcrest stated that it had rejected one bid because it was too low. However, it didn’t rule out engaging in business with its larger competitor, which submitted an indicative bid on Sunday. Newmont would be offered 0.38 Newmont shares per Newcrest share in the new proposal. There would also be a plan to list Newmont on the Australian Stock Exchange.
Newmont’s shareholders would own 70% of the combined company while Newcrest’s 30% would be controlled by them.
Simon Mawhinney is the chief investment officer at Newcrest, Allan Gray’s largest shareholder, and he said that he wouldn’t support a takeover under the terms suggested.
“Newcrest is very affordable. He said that there is a dilution chance. He said that “the merger ratio is too cute by half” and noted that the Australian company was well funded and that long-life gold reserves should have been highly valued.
Jefferies analyst Mitch Ryan said that the approach could shake out other bidders after Barrick was linked to a takeover.
He said, “While no formal indications have been given, it is possible for other suitors to be interested.”
Newcrest is being advised by JPMorgan and Gresham Advisory Partners. It said it would be open to considering the new offer. Bank of America, Centerview Partners, and Lazard are advising Newmont.
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