Newmont creates largest gold miner in €8.7bn deal

Newmont creates largest gold miner in €8.7bn deal
The US mining giant Newmont’s open pit mine site on Indonesia’s Sumbawa island. Picture: Getty Images

Newmont Mining will buy rival Goldcorp in a deal valued at $10bn (€8.7bn), creating the world’s largest gold miner and cementing a return of mergers and acquisitions to the industry.

The transaction comes just three months after Barrick Gold’s move to buy Randgold Resources in a $5.4bn transaction, which instantly spurred speculation that rivals would have to respond.

The two huge gold deals have the potential to spark investor interest after the industry lost favour following years of lacklustre bullion prices, bad investments, and disastrous deals.

Just two weeks ago, Mark Bristow, the new chief executive of Barrick, said the industry is heading for irrelevance unless there are major changes.

Goldcorp shares surged 7.5% at one stage; while Newmont shares fell more than 8%.

Newmont and Goldcorp were “clearly not willing to sit back and let Barrick take the limelight,” said Kieron Hodgson, a natural resources analyst at Panmure Gordon in London.

Gold mining companies are turning to M&A as a way to kickstart growth and secure mine reserves after a decade of cutting back on exploration spending, according to Adrian Hammond, who covers African gold companies for SBG Securities.

Investors have punished the industry in recent years and Newmont shares are about half the value from a peak in 2011.

“Companies are struggling to compete for lower costs whilst trying to replenish their reserve base, so acquiring assets has become the easier alternative,” Mr Hammond said.

Newmont will pay a premium of 17% to the weighted average share price from the last 20 days and also plans to pay two US cents for each Goldcorp share. 

Newmont creates largest gold miner in €8.7bn deal

The deal will create a company that runs mines in the Americas, Australia, and Ghana and exceeds Barrick-Randgold in scale, producing about 7.9 million ounces of gold a year.

It also rivals Barrick’s purchase of Placer Dome as the gold industry’s biggest takeover.

That deal had a final value of about $9.9bn when it was completed in 2006.

Newmont and Goldcorp said they will sell up to $1.5bn in assets over the next two years, echoing a similar Barrick pledge to concentrate on the best-performing mines.

Newmont also promised initial cost savings from the merger of $100m a year.

The promise of unloading assets, something Barrick is also expected to do, will have repercussions for the industry as a host of mines are likely to be put up for sale.

Bloomberg

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