| Newcrest Mining's Cadia gold mine in New South Wales, Australia, is among the assets Newmont will acquire through a friendly takeover. |
Newmont Corp.'s pending acquisition of gold miner Newcrest Mining Ltd. will drive substantial cost savings and increase Newmont's block cave mining know-how while setting the stage for the sale of noncore assets in a bid to reap $2 billion in near-term cash flow, according to analysts.
The companies signed a definitive agreement May 14 for the friendly deal, which will cement Newmont's position as the gold sector's top miner by a wide margin if it moves forward. Newcrest had rejected earlier bids from Newmont but ultimately agreed to sweetened terms. The new deal includes a proposed $1.10 special dividend that Newcrest will pay to shareholders.
In making the acquisition, US-based Newmont broadens its footprint in Australia and the Americas, increases its copper output, and nets Newcrest's technical expertise, which could open doors to developing and acquiring new mining projects, analysts said.
"This a good transaction for Newmont," Kevin Murphy, a mining analyst with S&P Global Commodity Insights, said in an email. "They diversify regionally and add more copper to their portfolio."
Big gold
If
Newmont projected that it would reap $500 million in annual pretax synergies within two years of closing the deal and bolster near-term cash flows by $2 billion or more through asset sales and tweaking planned capital spending from combined operations.
"When we think about portfolio optimization, it's certainly looking to rationalize the portfolio through divestments like we did four years ago with Goldcorp Inc.," Tom Palmer, Newmont's president and CEO, said on a May 15 call with analysts. Newmont agreed to acquire the Canadian gold miner in a blockbuster deal valued at $10 billion in early 2019, projecting annual pretax synergies of $100 million at the time.
Brain gain
Beyond adding mining assets, some analysts expect the Newcrest megadeal to enrich Newmont's corporate culture and technical brainpower in ways the Goldcorp deal did not.
"There will be more integration because of all the value add that Newcrest brings," Joe Mazumdar said. Mazumdar is a mining analyst, publisher of Exploration Insights and was Newmont's director of strategic planning and corporate development from 2006 to 2009.
Analysts highlighted Newcrest's expertise in block cave mining and a greater focus on earlier-stage exploration through joint ventures with juniors. Block cave mining is used to extract ore from large, typically lower-grade underground deposits.
"I can see Newmont applying a different rationale when they're looking at assets now," Mazumdar said. "Deep, block caving is no longer a barrier for them. I think that's a big deal."
To chop or not
What assets Newmont may sell is not clear, assuming the deal goes forward. Palmer said Newmont would have "a considered process" about which projects or operations it would auction off.
The core of the combined company would be 10 mining operations that Newmont defines as tier 1 assets, as well as projects and mines in British Columbia's Golden Triangle region. Top-tier assets include Newcrest's Cadia gold mine in Australia and Newmont's share of the Nevada Operations joint venture with Barrick Gold.
Newmont will also assess planned spending on projects to "ensure that they are sequenced up so that you're managing the appropriate draw of cash that goes towards that reinvestment back in the business," Palmer said.
Telfer talk
Newcrest's Telfer, a gold mine in Western Australia with waning reserves, stands out as a front-runner to be snapped up if it hits the chopping block, according to Canaccord Genuity mining analyst Tim McCormack. Newcrest listed Telfer as a tier 2 asset in its Macquarie Australia Conference presentation earlier in May, and McCormack said gold junior Greatland Gold PLC would be a logical buyer.
London-headquartered Greatland Gold owns a 30% stake in Newcrest's 70%-owned Havieron gold deposit, which, if developed, could feed the Telfer facilities. Newcrest declined to exercise an option for an additional 5% interest in its Havieron joint venture in August 2022.
"I know the Greatland view on Havieron is that it's going to keep getting a lot bigger and better, and if that's the case, it might be attractive for them to try a stitch-up with Telfer and put the whole lot together and take ownership of it," McCormack told Commodity Insights.
With the addition to its board in December 2022 of Mark Barnaba, deputy chair of iron ore giant Fortescue Metals Group Ltd., and former Fortescue CEO Elizabeth Gaines, Greatland Gold has "built a team and a board now that's highly capable of executing and running big-scale mines," McCormack said. "I don't know why you would do that if you didn't have a bit of an intention to try to become an operator again."
Greatland Gold could not immediately be reached for comment.
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