Ratings group Moody’s has given a tick to Newmont’s all paper $A24 billion proposed offer for Newcrest.
Under the offer, Newcrest shareholders would receive 0.380 Newmont shares for each Newcrest share, which would result in Newmont shareholders owning 70% of the combined company and Newcrest shareholders owning 30%.
Moody’s said the “transaction as proposed would be credit positive for Newmont because of the all-equity nature of the deal and the resulting increase in its scale, geographical and operational diversity and mineral reserves and resources.”
“The transaction would give Newmont greater exposure to copper, expand its growth project pipeline and exploration portfolio, modestly lower leverage and afford potential operational and administrative synergies.
“Because the transaction is a non-binding proposal with extensive conditions, there is no ratings effect at this time.”
That’s all a bit coy of Moody’s given the all-paper offer is designed to keep Newmont’s debt low and retain the approval of the ratings group.
Any case put up in an offer would see Moody’s take a look at the credit rating impact on Newmont.
And yet Newmont will have to put cash on the table for Newcrest because at the moment, there is no need for Newcrest shareholders to own the US-based miner’s scrip.
If Australian investors want Newmont shares, they can easily buy them; or buy an ETF with Newmont shares in it; or, better still, buy a gold-based ETF.
Moody’s was very positive about the attractions of Newcrest for Newmont, writing on Thursday.
“Newcrest’s portfolio of assets includes gold-copper mines in Australia (Cadia and Telfer), a gold mine in Papua New Guinea (Lihir), other smaller gold and gold-copper producing assets in Canada and Ecuador and multiple advanced and exploration properties in various countries.
“For fiscal 2023 (ending in June), Newcrest guided gold production of 2.1-2.4 million ounces (moz) and copper production of 135-155 thousand tonnes (kt),” Moody’s said.
In 2021-22, Newcrest produced about 2moz of gold at all-in sustaining cost of $1,043/ oz, and 121kt of copper, generating approximately $2 billion in EBITDA and ending the year with leverage of 1x, on a Moody’s-adjusted basis.
“Newcrest Mining Limited’s standalone credit profile benefits from the company’s solid production profile, competitive cost and margins, and substantial reserves. Its sizable copper by-product production provides a degree of commodity diversity.
“Additionally, the company consistently maintains a solid financial and liquidity profile, underpinned by its publicly announced financial policies of maintaining less than 2x net debt/EBITDA, gearing of below 25%, an investment-grade rating and liquidity sources of at least $1.5 billion, with one-third in cash.”
Newcrest’s overall operational scale and diversity are constraints to its credit profile because they are lower than similarly rated peers. Additional credit constraints include the need to spend on growth to replace/support its production profile, and the jurisdictional risk inherent in some of the geographies where the company’s assets are located.
“The credit profile also recognizes the inherent volatility in gold prices, given the company’s predominant focus on gold production and its largely unhedged position. For fiscal 2022, the company generated revenue of approximately $4.2 billion,” Moody’s said.
Moody’s pointed out that excluding any asset sales, “the combined company would have nearly 150 million oz in pro forma proven and probable gold reserves as of year-end 2021, and would be expected to produce 7.5-8.5 million oz of gold (Telfer mine has a two-year gold reserve life), extending Newmont’s leadership position as the largest gold producer globally.
“The company would also produce 175-200kt of copper annually, along with significant amounts of silver, zinc and lead. The transaction would also materially increase Newmont’s exposure to the lower risk, mining-friendly jurisdictions of Australia and Canada and create opportunities for regional operational and corporate synergies.
“Newmont’s standalone credit profile is supported by the company’s strong operating performance capability through a range of gold price points, discipline in its capital allocation policies, focus on liability management and good pipeline of projects that support the company’s ability to maintain current production levels.
Just on what Moody’s said there about Newmont, the ratings group seems to be suggesting existing Newmont shareholders would get a better deal than newcrest shareholders would from being acquired.
Moody’s didn’t say it but the comments suggest Newmont should put its hand a little deeper in its wallet?
Newcrest shares slipped 1.4% on Thursday to close at $25.22.
