Little surprise Newmont shares lost more than 4% in value in trading on Monday in New York after its $A24 billion all-paper attempt to swallow Newcrest was revealed – not only do some investors in the Australian company not like it, neither does putative rival Barrick Gold.
Barrick signalled it was unlikely to challenge Newmont’s approach with an offer of its own, seemingly killing off any thoughts of a bidding war for Australia’s biggest gold miner.
Barrick and Newmont have form – Barrick failed in an audacious attempt to takeover Newmont with an all-paper bid back in early 2019 and agreed to merge their huge Nevada based gold mining operations.
Barrick has remained on the sidelines during other bids such as Goldfields’ failed attempt to buy Yamana Gold and the bid by Agnico Eagle and Pan American Silver.
Agnico Eagle had earlier grabbed control of rival Kirkland Lake. Barrick and CEO Mark Bristow has not played a part in these deals except as a sideline threat that never eventuated.
Now Bristow seems to be playing a similar role – he says he can’t understand the Newmont offer.
“There is a difference between value merger acquisitions and getting bigger for the sake of getting bigger,” Bristow, who has long predicted industry consolidation, told Bloomberg Monday in an interview.
So Bristow won’t challenge it and, with Monday’s share price drop, the premium to Newcrest’s share price sinks to around 7% – which will not be enough.
Both Newmont and Barrick know they have to find new ounces to maintain production levels over the next five years at least. Both giants have nothing in their current portfolios with the potential to add a couple of million ounces quickly, which is what Newcrest would do.
Newcrest has lower production costs than Newmont and the Financial Times’ Lex column advised Newmont to spend some of those potential cost savings on a higher offer for Newcrest.
No mention of the need for a cash component for the offer, which might end up very expensive.
The absence of a bidding war leaves the Newcrest and Newmont share prices isolated and reacting to the changes in the gold price, the value of the US dollar and interest rate movements.
The only way Newmont can make the bid a reality is to anchor part of the bid with a large dollop of cash. Agnico Eagle put up $US1 billion cash as the anchor in the bid it and Pan American launched for Yamana.
That proved to be more successful than the all-paper bid from Gold Fields which collapsed as the price of gold fell in 2022 and, with it, Gold Field’s share price.
Australian investors in Newcrest know all this and clearly think Newmont’s second offer of 0.380 of one of its shares for each Newcrest share is too cheap.
Newcrest shares rose 1.7% to $24.95 on the ASX yesterday as more punters and hedge funds got set.
