Introduction
As the energy transition becomes imminent, players in the mining industry are moving to secure the future supply of critical minerals such as copper, nickel, and lithium and divest investments that fueled the economy of the past. This strategic shift has driven the flow of mergers and acquisitions, with companies seeking to consolidate a position that will capitalize on the future’s demand.
Aside from the critical metals for the energy transition, gold has become more attractive to industry players looking to hedge against inflation and economic uncertainty and increase their market share in a price-favorable sector that has seen a decade of underinvestment in new supply.
Newmont is the world’s largest gold mining company, with over 100 years in the industry. The company operates worldwide in countries such as the United States, Ghana, Australia, Canada, Argentina, Peru, Suriname, Mexico, and more. In Q4 of 2023, Newmont announced it had completed its acquisition of Newcrest, an Australian-based rival, for $19.2 billion. This strategic move will expand Newmont’s global scope and create a series of synergies that will render it more competitive in a sector trending towards consolidation.
Industry Overview
The gold market has been rallying for over a year and a half to over $2100 per Troy Ounce due to a series of driving factors. After the United States weaponized the dollar in its sanctions against Russia, central banks, especially those in emerging markets, have been buying up gold in record amounts. Furthermore, Chinese consumers have been actively buying as real estate and equity markets weaken. In addition, the expectation of rate cuts shortly is also driving demand. However, these factors still struggle to justify the price increase rates, so two rhetorics are prevailing: either a considerable correction is coming up, or a new appetite has been found in the gold market as investors seek protection from a future of many unknowns.
Source: Gold.org
Although the strategic priority among players in the mining industry is still to secure the future supply of critical minerals in the energy transition, such as copper, nickel, and lithium, M&A in the gold industry has accelerated as gold’s continued status as the ideal hedge amidst economic uncertainty, the rising input costs, and increasingly evident fragmentation has captured investor attention
In 2022, the gold market had $40 billion of mergers and acquisitions, reaching decade-high levels. The following year, the activity continued, with various deals making headlines. In April of 2023, Pan American Silver (PAAS) completed its takeover of Yamana Gold Inc., adding four significant producing mines in Brazil, Chile, and Argentina for $4.8 billion. Potential synergies are estimated at around $40-60 million per year. Furthermore, the Australian giant BHP Group acquired OZ Minerals, a nickel, copper, and gold miner, in a $6.4 billion deal.
Gold M&A deal value
Source: Bloomberg, Baker Steel Capital Managers
Mckinsey stated that the future of M&A in the gold industry is also looking bright, likely continuing this accelerated pace of deal-making. Higher gold prices increase companies’ cash reserves, improving disposable cash flow and access to debt capital through strengthened financial statements. In addition, industry fragmentation is pushing companies to scale inorganically as they seek to raise the low barriers to entry that have long been characteristic of the industry. Finally, as exploration budgets have systematically shrunk over the past decade, companies are expected to resort to M&A as the main growth driver.
Companies Overview
Newmont Corporation is a multinational company that fills the role of the world-leading producer of several materials such as copper, silver, zinc, and lead. The company has its headquarters in Denver, Colorado, United States, and mainly operates in favorable mining jurisdictions, with less bureaucratic and practical costs, like Africa, Australia, Latin America & Caribbean, North America, and Papua New Guinea. Newmont is the only gold producer listed in the S&P 500 Index and is widely recognized for its environmental, social, and governance practices. With approximately 21,000 employees worldwide, Newmont Corporation operates globally, focusing on the exploration, acquisition, development, and production of precious metals and minerals.
In FY23, the company reported a total revenue of $11.81 billion, slightly lower than the $11.91 billion recorded in FY22. It also recorded an EBITDA of $408 million in FY23, showcasing its operational profitability. Despite market fluctuations, Newmont Corporation remains committed to sustainable growth and operational excellence in the mining industry.
Newcrest Mining Limited is a leading gold mining company headquartered in Melbourne, Australia. The company, with around 6500 employees, operates primarily in the exploration, mining, and sale of gold and gold/copper concentrates. Newcrest’s largest production hub is located in Australia, with operations extending to countries such as Papua New Guinea and Indonesia.
In FY23, Newcrest reported a total revenue of $4.5 billion, showing growth from the $4.2 billion recorded in FY22. The company’s portfolio is mainly composed of low-cost, long-life mines, resulting in significant gold reserves, equivalent to over a quarter century’s worth of production at current extraction rates. Newcrest’s financial performance is impressive, achieving in 2023 a $2.06 billion EBITDA, reflecting operational efficiency.. With an ROE of 6.64% in 2023, Newcrest demonstrates its ability to generate returns for investors, despite the industry average being 16%.
Newmont and Newcrest Factsheet 2023
Source: Bocconi Students M&A Circle, Annual Reports
DEAL RATIONALE
This transaction arises from deliberations conducted on profoundly pertinent subjects in the realm of innovation and transformation. The domains set to benefit from these changes encompass:
• Sustainability and Social Responsibility
• Safety and Risk Mitigation
• Inclusion and Diversity
• Operations Optimization and Synergy Creation
• Geographical Impact and Resource Optimization
The New Sustainability Standard
Newmont, a distinguished frontrunner in sustainability within the mining sector, aims to imbue Newcrest’s operations with its proven practices and leadership. This commitment entails:
• A robust emphasis on workplace safety and risk mitigation, aiming to eradicate fatal incidents.
• Advocacy for social inclusion, transparency, and integrity as foundational pillars for cultivating meaningful relationships with governmental bodies, local communities, suppliers, and employees.
• Continuation of environmental management practices and the pursuit of Newmont’s climate objectives.
• Establishment of an inclusive and equitable workplace environment to attract and retain a diverse array of talents and foster innovation.
World-Class Portfolio
The acquisition is poised to forge a premier asset portfolio, characterized by a concentration of elite-level operations, predominantly situated in low-risk jurisdictions. Anticipated offerings from this portfolio include:
• Global gold production totaling approximately 8 million ounces annually, predominantly sourced from 10 sizable, cost-effective, and enduring assets.
• Combined annual copper production estimated at around 350 million pounds, emanating from operations in Australia and Canada.
• A diverse array of growth prospects stemming from reserves and resources constituting the industry’s most substantial base, with a notable portion of gold reserves clustered in the Americas and Australia.
Realization of Synergies
Foreseen synergies resulting from the amalgamation of Newcrest’s and Newmont’s operations encompass:
• Pre-tax annual savings of approximately $500 million within the initial 24 months post-transaction closure, facilitated by administrative streamlining, supply chain enhancements, and ongoing improvement initiatives.
• Opportunities for value augmentation through the seamless integration of operations, harnessing best practices and top-tier talent across two pivotal mining jurisdictions.
• The acquisition will bolster Newmont’s footprint in Australia and Canada, facilitating operational optimization and the maximization of resource value in these regions.
• Newmont remains steadfast in upholding a robust balance sheet and maximizing shareholder returns through meticulous portfolio management and responsible capital allocation.
In essence, the acquisition endeavors to establish a synergistic alliance between two mining industry leaders, with the overarching objective of maximizing shareholder value, championing sustainability, and fully capitalizing on growth prospects in pivotal mining jurisdictions.
DEAL STRUCTURE
The acquisition of Newcrest Mining Limited by Newmont Corporation [NYSE: NEM] has been finalized with the approval of the proposed scheme of arrangement by the Federal Court of Australia on October 17, 2023.
The Scheme was subject to customary conditions, including shareholder approvals from both companies, with Newcrest requiring more than 50 percent of shareholders voting and at least 75 percent of votes cast, and Newmont requiring more than 50 percent of votes cast. The Independent Expert concluded that the Scheme was in the best interests of Newcrest shareholders. Over 92% of Newcrest shareholders voted in favor of the scheme, reflecting strong support for the transaction.
Under the terms of the Scheme, Newmont has acquired all outstanding Newcrest shares, with Newcrest shareholders receiving 0.40 Newmont shares (or CDIs) for each Newcrest share held.
Newmont issued 357,691,627 new shares of Newmont common stock, distributed as:
o New Newmont Shares for the 4.4%
o Shares underlying New Newmont CDIs for the 95.5%(1)
o a residual part as shares underlying New Newmont PDIs (<0.1%)(2)
Additionally, Newcrest has funded and paid its shareholders a franked special dividend of up to USD$1.10 per Newcrest share, corresponding to a total of USD$983.08m (6.3% of the deal total).
Based on current market prices, the implied equity value of Newcrest is A$26.2 billion, inclusive of the dividend and an enterprise value of A$28.8 billion. Upon implementation of the Scheme, Newmont and Newcrest shareholders now own approximately 69% and 31% of the combined entity, respectively.
Both Newcrest and Newmont were subject to customary exclusivity restrictions, including no-shop, no-talk, and no-diligence restrictions, subject to certain exceptions. Trading in Newcrest shares with ticker NCM on the ASX, PNGX, and TSX was suspended at the close of trading on 26 October 2023.
(1) CDIs (Chess Depositary Interests) give investors the same beneficial interests as holding shares. In this case, CDIs allow Australian investors to hold acquirer securities relying on an instrument issued by an Australian depository institution.
(2) PDIs (Partially Paid Instalments) allow for the right to own and receive dividends as a fully paid share, but only a portion of the total share price has been paid leaving for the rest to be paid later through installments. Once installments are completed the PDI gets converted into a fully paid share.
Authors: Olga Nasledysheva, Francesco Savelli, Letizia Iannincello, Francesco Casati, Greta Angelova
Sources: Mergermarket, Newcrest, Business Wire, Newmont, Macro Trends, Fitch Solutions, Financial Times, Yahoo! Finance
Bocconi Students M&A Circle 