Dec 13, 20235 min read

Newmont’s $16.8bn Acquisition of Newcrest

By Heather Leung, Chengcheng Liu, Boyu Deng and Edward Fung (HKUST) ; Carlo Leopardi, Tommaso Arona, Alexander Svanidze, Edoardo Tosti di Valminuta, Alina Shaikh, and Matthew Gurevich (Boston University)

Photo: Jingming Pan (Unsplash)

Overview of the deal

Acquirer: Newmont Corporation

Target: Newcrest Mining Limited

Total Transaction Size: $16.8 billion (A$26.2 billion)

Closed Date: October 18, 2023

Target Advisor: Gresham House, J.P. Morgan (Financial), Cravath, Swaine & Moore LLP, Herbert Smith Freehills, and McCarthy Tétrault (Legal)

Acquirer Advisor: BMO Capital Markets, Bank of America, Centerview Partners, Lazard (Financial), King & Wood Mallesons, and Joele Frank (Legal)

Newmont Corporation has successfully completed the acquisition of Newcrest Mining Limited, forming the world's leading gold company with a robust copper production. The merger is expected to strengthen Newmont's position as a responsible gold mining leader, with a portfolio comprising over half of the world's Tier 1 assets, long-life operations, valuable exploration opportunities, and world-class talent. The combined entity aims to generate lasting returns for decades, while emphasising sustainability. Annual pre-tax synergies of $500mn are expected within the first 24 months. At least $2 billion in cash improvements through portfolio optimization are expected in the first two years after closing.

Newmont aims to integrate Newcrest's assets and people into its proven operating model efficiently and responsibly. The consolidated group is expected to have a portfolio with scale, margin, and mine life to provide returns for decades as well as being well positioned to lead in environmental, social, and governance (ESG) performance.

The acquisition received strong support from Newcrest Mining shareholders, with 92.63% of votes cast in favour of the deal. Newmont shareholders in the U.S. voted over 96% in favour of the acquisition. The deal is the third-largest ever involving an Australian company and one of the biggest global buyouts in 2023.

Company Details (Acquirer - Newmont Corporation)

Newmont Corporation, a leading global gold mining firm headquartered in Denver, Colorado, has a vast operational presence across North and South America, Australia, Africa, and Papua New Guinea. Renowned for responsible and sustainable mining practices, Newmont's diverse portfolio boasts highly productive and technologically advanced mines. This positions the company as a top gold producer with a strong focus on long-term value through substantial gold, copper, silver, zinc, and lead reserves, ensuring decades of robust production.

Founded in 1921, headquartered in Denver, Colorado

CEO: Tom Palmer

Number of employees: 14,600

Market Cap: $45.74bn (as of 06/12/2023)

EV: $39.78bn

LTM Revenue: $11.05bn

LTM EBITDA: $3.34bn

LTM EV/Revenue: x3.6

LTM EV/EBITDA: x11.9

Recent Transactions: $10bn acquisition of Goldcorp (April 2019); $2.3bn acquisition of Fronteer Gold Inc. (April 2011)

Company Details (Target - Newcrest Mining Limited)

Newcrest Mining Limited is a leading gold mining company focused on the exploration, mining, and sale of gold and gold/copper concentrates. With its largest production hub strategically located in Australia, Newcrest boasts a strong presence in the Asia-Pacific region, with operations extending to countries such as Papua New Guinea and Indonesia. Its portfolio of primarily low-cost, long-life mines have translated into significant gold reserves amounting to over a quarter century’s worth of production at current extraction rates.

Founded in 1966, headquartered in Melbourne, Australia

CEO: Sherry Duhe

Number of employees: 5304

Market Cap: $13.69bn (as of 1/11/2023)

EV: $14.35bn

LTM Revenue: $4.45bn

LTM EBITDA: $1.94bn

LTM EV/Revenue: x3.2

LTM EV/EBITDA: x7.1

Projections and Assumptions

Short-term consequences

The deal, which is the biggest M&A in the gold industry ever for transaction size, will lead to important consequences in the short-term. Newmont’s position as the biggest gold producer in the world is now more reinforced, currently having 20 active mines in 11 countries and numerous ongoing explorations. As done in after 2019, when Newmont acquired Goldcorp Inc., the company CEO has announced that they will perform a portfolio optimization, planning to sell about $2bn in assets. As is common practice following M&A within the mining industry, Newmont will look to shed some of its assets following the acquisition. Specifically, analysts have estimated two mines in Australia, Telfer and Havieron, to be the likely target of divestiture. This operation will help the company to sustain the enormous acquiring and new operational costs, guaranteeing as well new cash flow for future reinvestments. In addition the deal, along with the $5bn distribution of 4% yield dividends, is part of Newmont’s strategy to increase its stock price, that has been down over 18% year to date.

On the gold market side, the transaction opens the path to new M&A deals on the short and medium term. Not only Newmont will try to sell at least two of its mines, potentially attracting both strategic and PE M&A, but also its biggest competitors will try to perform other transactions to follow Newmont’s growth in market share.

Long-term Upsides

In terms of long-term earnings projections, the merged business is anticipated to yield approximately $500mn in annual pre-tax synergies and aims to generate upwards of $2bn cash through portfolio optimization, both within 24 months of closing.

Regarding industry prospects, both gold and copper sectors present significant growth opportunities. Gold is currently undervalued, with predictions suggesting the XAUUSD rate will rise, potentially exceeding $3K in optimistic scenarios in the next 5 years. The global copper industry is expected to face a supply deficit by 2025-26 due to the transition towards decarbonization and increased demand for greener energy; Newcrest's addition of 50 billion pounds of copper to Newmont's portfolio is a significant move towards accessing this resource.

As for synergy realisation, Australia's stable mining jurisdictions should contribute to reducing Newmont's geopolitical risk premium while enhancing its All-In Sustaining Cost (AISC) leverage over time as the acquired assets are integrated and optimised. Newcrest's mines in British Columbia's "Golden Triangle" offer promising growth prospects and are familiar to Newmont, which has early-stage assets nearby and older ones in Ontario. Newmont's proven expertise in operating Tier-1 mines, such as the successful return of $5.8bn from Peñasquito in Mexico since its acquisition four years ago, is also noteworthy. Given its vast geographical presence and complexity, Newmont is likely to promptly divest some non-core Newcrest assets, leveraging its experience in selling assets like the Jundee mine in Western Australia and its half of Kalgoorlie's Superpit.

With respect to ESG considerations, the inclusion of Wafi-Golpu in the company's copper pipeline presents ESG challenges due to environmental concerns, resulting in a permit hold over deep-sea tailings issues. Newmont, being unfamiliar with Papua New Guinea, may encounter difficulties advancing the project amid operational risks associated with geopolitical issues and social unrest.

Risks and Uncertainties

While Newmont and Newcrest share historical connections, they have operated as independent entities for nearly 25 years, with separate operations spanning different continents. Geographical and cultural disparities imply potential integration risk that may challenge the realisation of the $500mn in projected annual pre-tax synergies. However, while concerns regarding selling to a foreign investor were raised during the Newcrest shareholder meeting, such apprehension appears limited to select retail investors. The more than 96% majority vote, on the other hand, indicates that company heritage is only a minor concern for most stakeholders.

Furthermore, the acquisition’s price is based on the stabilised future gold and other metals’ price. However, given weakened economic prospectus, the future financial performances of the combined firm may not meet shareholder’s expectations. Since Newmont confirmed the proposal to combine with Newcrest on Feb 5th, 2023, the share price of Newmont has dropped all the way by 17%. Although the equity plus special dividend transaction structure reduces liquidity risk related to the transaction, potential benefits to be enjoyed by the two entities lie entirely in the future share price increase. Should earnings not meet expectations, the dilutive effect of EPS would likely dampen Newmont’s already-low share price and further hurt both Newmont and Newcrest shareholders. But it seems the risk is low as the gold price has increased by 10% since the beginning of the year and it’s expected the gold price will continue to increase.

“Today marks a historic milestone in our company and the industry with the successful completion of this transformational acquisition of Newcrest by Newmont… Our attention now turns to safely, efficiently, and responsibly integrating Newcrest’s assets and people into Newmont’s proven operating model, so we can accelerate the delivery of our value-focused strategy for all our stakeholders.” – Tom Palmer, President and CEO (Newmont)