Top gold producer Newmont (NEM) Corp said it had made a $16.9 billion offer for Australian peer Newcrest (NCMGF) Mining to build a global gold behemoth, although investors and analysts said it undervalued the target amid a leadership change.
Newcrest is seeking a new boss, with previous chief executive Sandeep Biswas having stepped down in December, while global interest rates are expected to peak this year and turn down, polishing the outlook for gold prices.
The Australian gold miner said that it was considering the all-share proposal in a filing that was a response to media speculation over the weekend. The initial feedback from shareholders is that they want a higher price, according to 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 aggrieved by selling out too low or by paying too much,” said Simon Mawhinney, chief investment officer at Allan Gray, Newcrest’s largest shareholder with a 7.36% stake. “It’s not clear to me that this kind of symmetry exists with these deal terms.”
Newcrest shares surged 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 were not convinced the deal would pan out. Shares closed 9.3% higher at A$24.53.
Newmont, which is already the world’s biggest gold producer by market capitalization and by ounces produced, said the combination represented “a powerful value proposition.”
Newcrest’s operations include its top class Cadia asset in Australia, an expanding footprint in North America and Papua New Guinea, and growth potential in copper, highly prized as key to the energy transition. BHP (BBL) Group offered $6.4 billion for Australian copper miner Oz (OZMLF) Minerals Minerals in December.
The Newmont proposal is via an agreed scheme of arrangement that would need to be recommended by the Newcrest board and subject to due diligence, various regulatory approvals and a shareholder vote that could stretch out for months.
The indicative offer implies a 21% premium to Newcrest’s last closing value of A$22.45, materially below the traditional 30% takeover premium, noted analyst Jon Mills of Morningstar, which values Newcrest at about A$31 per share.
Newcrest shareholders would receive 0.380 Newmont shares for every Newcrest share, giving them a 30% stake in the enlarged miner. It is a 4.7% improvement from a previous 0.363 per share offer that Newcrest already rejected for not providing enough value to shareholders, Newcrest disclosed on Monday.
If investors don’t back the deal, the board will be under pressure to improve Newcrest’s value, perhaps by breaking out assets like Havieron and Telfer in Australia, or Lihir in Papua New Guinea, said Barrenjoey analyst Dan Morgan.
Newcrest has been expected to announce a new chief executive 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 viewed as a target in recent years given its middling 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 about the matter.
The all-share nature of the offer meant the timing is more likely to be linked to Newcrest’s leadership vulnerability than a big call on the gold price, but it probably also reflects a constructive view on the precious metal, the banker added.
Risks are growing for gold to break higher, Morgan Stanley in a note on Jan. 16, noting that its macroeconomists