Proactive Investors - Analysts at Canaccord Genuity (TSX:TSX:CF, LSE:CF) Group Inc noted that a potential Newmont Corporation and Newcrest Mining combination would solidify Newmont's position as the world's largest gold producer.
Newmont has made a non-binding indicative offer to acquire Newcrest Mining (NCM) for 0.38 Newmont shares per NCM share (A$27.16/share), a 21% premium to Friday's close and values Newcrest at US$17 billion. For reference, Newcrest is Australia's largest gold producer and the fourth largest globally by market cap with FY2023 guidance (at the midpoint) of 2.3 million ounces (Moz) of gold and 320 million pounds of copper.
“In our view, Newmont is the most logical acquirer of Newcrest among the North American senior producers with considerable geographic overlap in Australia and Canada, focus on sizeable, long-life assets and given its premium valuation,” Canaccord analysts said in a note to clients.
Investors reacted to the news, sending shares nearly 4% down to $47.87 on the New York Stock Exchange in morning trade.
After news broke of the potential Newmont-Newcrest tie up, Canaccord maintained its “hold” recommendation and US$56 price target on Newmont.
“A Newmont/Newcrest combination would solidify Newmont's position as the world's largest gold producer with pro forma attributable gold production of over 8.0Moz and almost double that of Barrick, the second largest producer,” the analysts added.
“Including by-product production, total GEOs would increase to more than 10Moz from approximately 7Moz currently. Newmont's production base in Australia would increase by roughly 1Moz per year to 2.4Moz and in Canada to 1.1Moz from 0.7Moz currently. We note that Papua New Guinea would be a new jurisdiction for Newmont but would represent
Adds big assets
While sharing its initial thoughts on the proposed transaction, Canaccord said it adds “significant long-life assets” to Newmont’s portfolio.
“Newcrest's assets include Cadia in Australia that has more than 30 years of reserve life, Lihir in Papua New Guinea with more than 20 years and a 70% interest in the Red Chris mine in British Colombia with an estimated underground mine life of 31 years,” pointed out the analysts.
“Newmont would also be in a position to leverage Newcrest's experience in block caving.”
According to the analysts, the proposed offer appears accretive to net asset value (NAV) and "relatively neutral" to near-term financial metrics based on consensus estimates.
“Using consensus NAV estimates, we estimate that the transaction is approximately 7% accretive but relatively neutral to 2023 EBITDA/share or CFPS. We also see the transaction as slightly dilutive on gold production per share but neutral on a GEO basis factoring in Newcrest's more than 300Mlb of copper production,” the analysts concluded, while noting that overall, the combined balance sheet remains “relatively strong.”
Newmont's proposal is an increase from an initial offer of 0.363 Newmont shares per Newcrest share that was rejected by Newcrest's board.