Top gold producer Newmont (NEM) Corp said it had made a $16.9 billion bid for Australian peer Newcrest (NCMGF) Mining to build a global gold behemoth, though investors and analysts said it undervalued the target amid a leadership change.
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Newcrest is looking for a new boss as former chief executive Sandeep Biswas stepped down in December, while global interest rates are expected to peak this year and then fall, improving the gold price outlook.
The Australian prospector said it was considering the all-stock proposal in a filing that came in response to media speculation over the weekend. Shareholders’ initial feedback is that they want a higher price, said a person familiar with Newcrest’s deliberations.
“A good litmus test for a reasonably priced deal is one where both seller and buyer feel somewhat disadvantaged by underselling or overpaying,” said Simon Mawhinney, chief investment officer at Allan Gray, the largest shareholder of Newcrest with a 7.36. % interest. “It’s not clear to me that this kind of symmetry exists with these deal terms.”
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Shares of Newcrest rose as much as 14.4% to A$25.60 ($17.77), the highest since May 2022, but remained below the implied current offer price of $27.16, suggesting investors are not thrilled. convinced that the deal would succeed. Shares closed 9.3% higher at A$24.53.
Newmont, which is already the world’s largest gold producer by market capitalization and ounces produced, said the combination represented “a powerful value proposition.”
Newcrest’s business includes its top-rated Cadia assets in Australia, a growing footprint in North America and Papua New Guinea, and growth potential in copper, highly valued as a key to the energy transition. BHP (BBL) Group offered $6.4 billion in December for Australian copper miner Oz (OZMLF) Minerals Minerals.
Newmont’s proposal is through an agreed settlement that would have to be recommended by Newcrest’s board of directors and is subject to due diligence, various regulatory approvals and a shareholder vote that could take months.
The indicative offer implies a 21% premium to Newcrest’s latest closing value of A$22.45, significantly lower than the traditional takeover premium of 30%, according to Morningstar analyst Jon Mills, who values Newcrest at approximately A$31 per share.
Newcrest stockholders would receive 0.380 Newmont shares for each Newcrest share, giving them a 30% stake in the expanded miner. It’s a 4.7% improvement over an earlier offer of 0.363 per share that Newcrest had already rejected because it didn’t provide enough value to shareholders, Newcrest announced Monday.
If investors don’t support the deal, the board will be under pressure to improve Newcrest’s value, perhaps by breaking down assets like Australia’s Havieron and Telfer or Papua New Guinea’s Lihir, Barrenjoey analyst said Danny Morgan.
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Newcrest is expected to announce a new CEO this year, after Biswas announced his retirement after eight years.
Sherry Duhe, formerly chief financial officer, who joined Newcrest in February last year, is interim chief executive while a global internal and external search for a replacement is underway.
Newcrest has been seen as a target in recent years given its mediocre performance, but only a handful of buyers are big enough to take it out, said an investment banker who was not authorized to speak publicly on the matter.
The all-share nature of the offer meant the timing is more related to the fragility of Newcrest’s leadership than a big call for gold prices, but it also likely reflects a constructive view on the precious metal, the banker added.
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Risks for gold to break higher are mounting, Morgan Stanley said in a Jan. 16 note, noting that its macroeconomists were now forecasting lower rates and a weaker US dollar, in tailwinds for the metal.
Morgan Stanley is looking for a bull case of spot gold reaching $2,160 in the fourth quarter, up from $1,866 an ounce.