Pic: Tara Moore/DigitalVision
Mining
Newcrest’s (ASX:NCM) kaleidoscopic approach to Newmont’s chase for Australia’s leading gold miner says a lot about the current status of the company and what led to it becoming a target in the first place.
Yes, the fundamentals of acquiring a gold miner of the scale of Newcrest (+2Mozpa production, ~US$1000/oz costs) are always likely to be attractive.
But it was in a position of relative weakness, short a CEO, trading down against its peers and facing billions in capital expenditure in the coming years to take advantage of its impressive resource base.
Newcrest’s financial results last month were a curious mix of hubris and submission.
Having not even disclosed an initial 0.363 for 1 share proposal to investors, Newcrest knocked back a second 0.38 for 1 bid, valuing NCM at $24.5b after details of the approach had been leaked to the media.
But Newcrest opened its doors to its American suitor and former parent company for something that looks and smells like limited due diligence, while at the same time issuing a far larger than expected dividend to convince shareholders the company can go it alone, deliver major expansions at Cadia, Lihir, Havieron and Red Chris and still return cash to investors, without Newmont’s help.
Newmont is yet to return with a revised offer, but experts say it will be an attractive acquisition for the North American gold giant, the world’s largest with a production profile of 6Mozpa, should it get the deal across the line.
Metals Focus analysts say the proposal, which was non-binding and indicative, would have been the largest in the history of the gold sector, eclipsing Newmont’s own 2019 acquisition of Goldcorp in 2019 by US$4.8b.
Metals Focus are positive on the outlook of the transaction, at least on the Newmont side.
It would immediately lift the Denver based gold giant’s production portfolio from a relatively stagnant 185tpa to 250tpa and give it line of sight to growing production to 265tpa.
For a sense of its scale, the combined Newcrest-Newmont behemoth would produce a total amount worldwide equivalent to around 87% of Australia’s projected 2022-23 gold output. And Australia is neck and neck with China for the title of the world’s largest gold mining nation.
“Their attributable gold production has been around 185t per annum for the last few years and is forecast to remain between 185-200t per annum for the next decade,” MF analysts say.
“By adding Newcrest’s operations into its production profile, Newmont could immediately lift this figure to over 250t per annum, further cementing its position as the number one global gold producer.
“It also gives Newmont the potential to increase gold production to over 265t per annum in the near-term as the Cadia plant expansion ramps-up and the Cadia East block cave, Lihir Phase 14A and Telfer Wesdome Stage 8 cutbacks, come on stream.
“There is also considerable upside for longer-term growth via Newcrest’s share in the Havieron and WafiGolpu joint ventures, the block cave underground project at Red Chris and their strategic investments in Fruta del Norte and other projects in Ecuador.
“In addition, most of Newcrest’s gold operations are within low-risk jurisdictions where mining legislation and government policies are deemed to be supportive of mining investment, an attractive proposition to potential investors.”
That comes ahead of potential asset sales by Newmont out of a theoretical deal, which could open the door for mid-tiers to grow their own production profiles.
The other very attractive side to Newcrest’s portfolio is its copper output.
Newmont’s only major copper producing asset is the Boddington gold mine in WA, which itself provides huge jurisdictional synergies with Newcrest’s Australian assets like Telfer, Havieron and Cadia.
“As demand for renewable energy and electric vehicles gathers pace, copper is becoming an increasingly valuable commodity,” MF say.
“Newmont’s attributable copper production was 44kt in 2022, predominantly from Boddington. Newcrest produced 137kt of copper in 2022, with production coming from Cadia, Telfer and Red Chris.
“A deal with Newcrest would more than triple Newmont’s copper production in the near-term. This would give it greater exposure to this lucrative market while it continues the feasibility studies at Galore Creek, Norte Abierto and Nuevo Unión joint ventures and de-risks the Yanacocha Sulphides project.
“These are all polymetallic projects which have significant copper resources.”
Those copper tonnes aren’t just about tapping into the green investment thematic. With the sophistry of by-product accounting they also work to lower all in sustaining costs.
Newcrest is a lowest quartile producer, according to MF. By contrast Newmont’s US$1210/oz cost base between the first and third quarters of 2022 placed it around the mid-point of global gold producers on an AISC basis.
With that in mind, a mine like Cadia which has a long term AISC forecast of $198/oz (US$148/oz) in real terms according to an expansion study last year thanks to its copper credits is a highly attractive asset for any large scale gold miner.
“Consequently, a deal with Newcrest has the potential to drive Newmont’s AISC down as a result of the higher by-product credits,” MF says.
Will we see a revised offer from Newmont? The gold major’s Australian-raised CEO Tom Palmer told analysts last week it was engaging with Newcrest, so odds are something could be coming down the line.
Right on cue, Newcrest shares were among the top performing in the large cap space as gold rebounded overnight to ~US$1830/oz after a tough month of trade.
NCM shares were up almost 3%, only beat by lithium miner Pilbara Minerals (ASX:PLS), up 4%, with blue chips iron ore stocks also in the green as prices lifted on real estate market improvements in China overnight.
The materials sector rose 1.5% this morning, with energy stocks up 0.82%.
Mining
Mining
Mining
Mining
Mining
Mining
Get the latest Stockhead news delivered free to your inbox.
