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Gold Miner Unearths Risky M&A Seam

MELBOURNE, Feb 6 (Reuters Breakingviews) - What’s a company to do when a rival is looking for a new chief executive amidst some production snafus? Buy it, of course. That’s precisely what Newmont boss Tom Palmer has just done, offering $17 billion in stock for Australian gold excavator Newcrest Mining.

At present Newmont is offering a 22% premium to the target’s undisturbed share price, after Newcrest rejected an earlier 17% boost. That would require cutting around 18% from annual operating costs, Breakingviews calculates. That’s reasonable for two companies in the same sector that overlap in many regions.

What Canada’s Barrick Gold does in response is the main question. Boss Mark Bristow tried to buy Newmont in 2019 after the latter agreed to snap up Goldcorp. His nil-premium attempt failed, although they did set up a joint venture for their Nevada operations. Bristow’s predecessor had previously flirted with buying Newcrest.

Newmont might appear to have the upper hand over Barrick at first glance. It is the world’s largest gold miner, which at $40 billion sports a market capitalisation 25% higher than Barrick’s. Merging the two would reunify Newmont with a company which was initially set up as the suitor’s Australian subsidiary almost six decades ago.

Barrick, though, trades at almost 26 times the next 12 months’ earnings, according to Refinitiv data, on rough par with Newmont. Its net cash position gives it a bit more balance-sheet flexibility than Newmont, whose net debt is roughly half its EBITDA. Crucially, Bristow is accustomed to smaller players buying larger peers, should it come to that: he got the top job after larger Barrick bought the company he ran, Randgold Resources, in 2018.

Bristow and Barrick’s Executive Chair John Thornton – a former co-president at Goldman Sachs – may not be comfortable watching Newmont extend its production lead without at least trying to entice either bidder or target into a different deal. Agnico Eagle Mines, the $24 billion third-largest miner of the ore, may want to dig in, too. The deal as currently imagined stacks up on paper, but there’s a high chance it will spark a value-destructive bidding war.


Australia’s Newcrest Mining on Feb. 6 said in a regulatory filing that it had received “a conditional and non-binding indicative proposal” to be acquired by Newmont. The all-share offer values Newmont at A$25 billion, a 22% premium based on the two gold miners’ closing prices on Feb. 3 and the U.S-Australian dollar exchange rate on Feb. 6.

Editing by Pete Sweeney, Pranav Kiran and Thomas Shum

Source: Reuters

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