Newmont Mining (NYSE: NEM)(TSX: NGT), the world鈥檚 largest gold producer, is seeking to build a global gold superpower by approaching Australia鈥檚 no.1 miner of the yellow metal, Newcrest Mining (ASX, TSX: NCM), .
If successful, the deal would be one of the biggest in Australian history, though initial feedback from analysts and shareholders suggests that Newmont will have to improve its bid.
It would also increase Newmont鈥檚 footprint in copper, as prices have soared recently due to its use in renewable energy and electric vehicles as economies move towards decarbonization.
The offer is already 4.7% higher than a previous proposal rejected聽by Newcrest, as the Denver, Colorado-based gold giant disclosed in a statement.
BMO analyst Jackie Przybylowski says that while the offer will likely come as a surprise to the market, as Newmont has recently gone for conservative approach to growth, it should be viewed as positive.
Newcrest鈥檚 assets fit well with Newmont鈥檚 existing portfolio, she noted. Additionally, the larger size of the combined company is consistent with Newmont鈥檚 recent comments around responsibly pursuing size, Przybylowski wrote in a note to investors.
Przybylowski noted the mining giant has been showing 鈥渟ome hints of a more aggressive approach coming鈥� as it weighs the importance of size 鈥渢o increase relevance to generalist investors.鈥�
Goldman Sachs also reacted positively to the news, highlighting that the integration of Newcrest into Newmont鈥檚 portfolio would provide the US gold producer a path to 鈥渋mmediately and substantially鈥� lift its output, considering the company鈥檚 鈥渇lattish production outlook鈥� for the next two years on a standalone basis.
鈥淸The deal also] increases [Newmont鈥檚] exposure to copper and expands its footprint in locations such as Australia and Canada in particular, that the miner is comfortable with,鈥� the bank said in a note to clients.
Morningstar analyst Jon Mills noted the offer may push other major gold miners to join the race for Newcrest, given the quality of its assets.
鈥淲e think Newcrest is now in play, but if a deal is to be done, it will likely need to be at a higher price,鈥澛燤ills wrote.
Barrick not interested
Barrick Gold鈥檚 (TSX:ABX)(NYSE:GOLD) chief executive, Mark Bristow, that his company, which in 2019 unsuccessful tried grabbing Newmont with a hostile takeover, did not plan to table a rival offer for Newcrest.
鈥淚t doesn鈥檛 make sense right now,鈥� he said. 鈥淕rowing bigger for the sake of growing bigger is not a strategy.鈥�
Newmont鈥檚 offer聽implies a 21% premium to Newcrest鈥檚 share price before the bid was announced.
Its proposal is via an agreed scheme of arrangement that would need to be recommended by the Newcrest board and subject to due diligence as well as a shareholder vote that could stretch out for months.聽
The Australian government would also have to bless the transaction as it would put four of Australia鈥檚 five largest gold mines under the control of one company.
Newmont shareholders would also have to approve the deal.
Newcrest, which is in the midst of finding a new chief executive officer as previous boss Sandeep Biswas stepped down in December, said on Monday it was .
The miner鈥檚 shares jumped as much as 14.4% in Sydney聽on Monday to A$25.6, the greatest daily increase since 2008 and highest level since May 2022. They closed at A$24.53 each.
The company currently operates the large open-pit and underground Telfer gold-copper mine in Western Australia鈥檚 Pilbara region and is the top gold producer in British Columbia, Canada since the 2019聽acquisition of聽the Red Chris copper and gold mine.
A year ago, the company expanded its footprint in Canada with the takeover of Pretium Resources, which handed it the聽Brucejack gold mine.
Newcrest also operates the Lihir and Hidden Valley mines in Papua New Guinea.
The combination of the two gold miners would bring them back together after almost 25 years. Melbourne-based Newcrest was established in the 1960s as Newmont鈥檚 Australia arm and it spun out in 1990, after it merged with BHP鈥檚 historic gold assets.
Gold prices have experienced a sustained period of strength since 2020 and have increased nearly 15% since November last year.