On Tuesday, August 18th, Newmont Mining announced that it was making a $17 billion offer to buy out Australia-based gold producer Newcrest Mining. The offer is the latest in a long line of mergers and acquisitions (M&A) deals in the gold sector, which has seen a wave of consolidation over the past few years. If accepted, this deal will be one of the biggest ever in the mining industry and would put Newmont at the top of global gold producers. In this article, we will explore what this bid means for the gold sector, M&A activity and more.
Newmont’s $17B Newcrest Bid
In early 2019, Newmont made a bid for rival gold miner Newcrest, valued at $17 billion. The all-stock offer was quickly rejected by the Newcrest board, but it nevertheless sent shockwaves through the gold sector.
The failed merger attempt is indicative of the consolidation that is currently taking place in the gold mining industry. With gold prices on the rise and costs increasing, miners are under pressure to increase efficiency and scale up operations. Mergers and acquisitions offer a way to do this quickly and efficiently.
Newmont’s move also highlights the growing importance of Australia as a global gold producer. Australia is home to both Newmont and Newcrest, and is currently the world’s second-largest gold producer (behind China). If the two companies had merged, they would have created a mining behemoth with operations spanning the globe.
The failed merger attempt does not mean that consolidation in the gold sector will come to a halt. Other miners will no doubt be watching closely and considering their own options. We could see more mergers and acquisitions in the months and years to come, as companies look to gain an edge in an increasingly competitive market.
What It Means For The Gold Sector
The gold sector has been consolidating for some time now, and the Newmont-Newcrest deal is the latest and largest example of this. The deal will see Newmont acquire all of Newcrest’s shares for a total value of $10 billion. This is a huge deal that will have major implications for the gold sector.
First and foremost, this deal signals that the gold sector is consolidation. This is something that has been happening for a while now, but this deal really cements it. There are now just two major gold miners in the world: Barrick Gold and Newmont Mining. This consolidation means that there is less competition in the gold mining industry, and it also means that these two companies have more power when it comes to setting prices.
This deal also has major implications for mergers and acquisitions in the gold sector. It is likely that we will see more consolidation in the industry in the wake of this deal. Companies will be looking to get bigger and stronger in order to compete with Barrick and Newmont. We could see a lot of activity in this space over the next few years as companies jockey for position.
Mergers & Acquisitions
- Mergers & Acquisitions: Newmont’s $B Newcrest Bid: What It Means For The Gold Sector
The gold sector has been in consolidation mode for the past few years and it looks like that trend is set to continue with Newmont’s (NEM) recent $10 billion bid for Australian-based Newcrest Mining (NCM). While the deal hasn’t been finalized yet, if it goes through it would create the world’s largest gold producer with annual output of around 7.5 million ounces.
This move comes as gold prices have been under pressure lately, falling below $1,200 an ounce recently. That has put pressure on gold miners’ margins and led to a wave of cost-cutting measures including job cuts, asset sales and mothballing of projects. In this environment, companies are looking to get bigger to benefit from economies of scale.
The Newmont-Newcrest deal would be the biggest in the gold sector since Barrick Gold’s (ABX) $10.4 billion acquisition of Randgold Resources in 2018. It would also be one of the largest mining deals anywhere in the world in recent years.
If this deal goes through, it would leave just a handful of major gold producers in the world including Barrick Gold, AngloGold Ashanti (AU) and Gold Fields (GFI). That could make it harder for smaller players to compete and could lead to more consolidation in the sector down
Pros and Cons of the Newcrest Bid
- Pros and Cons of the Newcrest Bid
Newmont’s $2.3B bid for Newcrest is the latest development in the ongoing consolidation in the gold sector. Here’s a look at the pros and cons of the deal:
Pros:
- The combined company would be the largest gold producer in the world, with an estimated production of 8.5 million ounces per year.
- The deal would give Newmont access to Newcrest’s highly profitable Cadia mine in Australia, which is one of the world’s lowest-cost gold mines.
- The combination of the two companies’ portfolios would create a more diversified and balanced portfolio, with exposure to a wider range of geographical regions and types of operations.
Cons:
- The deal would be highly dilutive to Newmont shareholders, who would own only about 40% of the combined company.
- There are significant regulatory hurdles to overcome, given that both companies have mines in Australia and Indonesia (which has a temporary ban on foreign ownership of mines).
How the Newcrest Bid May Affect Gold Prices
The gold sector has been consolidating for some time now, and the Newmont-Newcrest merger would be the biggest deal in the sector by far. If the deal goes through, it would create a gold mining behemoth with a market value of over $100B. The combined company would own some of the world’s most iconic gold mines, including Newmont’s Yanacocha mine in Peru and Newcrest’s Cadia Valley operations in Australia.
The acquisition is likely to have a significant impact on gold prices. First, it would reduce the number of major gold miners from four to three (if we include Barrick Gold as a major player). This consolidation could lead to higher prices for gold, as fewer miners would mean less competition and more pricing power. Second, the new company would have an enormous amount of control over global gold supply, which could also lead to higher prices.
However, it’s worth noting that not everyone is bullish on the deal. Some analysts believe that the merger could actually lead to lower gold prices, as it could result in job cuts and cost-savings measures that could limit future production growth.
Conclusion
Newmont’s $17 billion bid for Newcrest is an unprecedented move in the gold sector and raises many questions about Mergers & Acquisitions. It will be interesting to see how this deal shakes out and if it could open the door for more M&A activity in this space. Either way, it’s a clear signal that mining companies are looking to consolidate their operations to increase efficiency and profitability. With increasing demand for gold and other precious metals, now may be the perfect time for these deals to take off.
