By Melanie Burton and Scott Murdoch
MELBOURNE (Reuters) -Top gold producer Newmont Corp said it had made a $16.9 billion offer for Australian peer Newcrest Mining Ltd to build a global gold behemoth, although investors and analysts said it undervalued the target amid a leadership change.
Newcrest is seeking a new boss, with previous chief executive Sandeep Biswas having stepped down in December, while global interest rates are expected to peak this year and turn down, improving the outlook for gold prices.
If successful, the all-share deal would be the largest mining takeover and the third largest corporate buyout in Australian history, according to Refinitiv data.
The Australian gold miner said that it was considering the proposal. Newmont, the world’s biggest gold producer by market value and ounces produced, described the combination as “a powerful value proposition”.
However, the initial feedback from shareholders is that they want a higher price, according to a person familiar with Newcrest’s deliberations.
“A good litmus test for a reasonably-priced deal is one where both seller and buyer feel somewhat aggrieved by selling out too low or by paying too much,” said Simon Mawhinney, chief investment officer at Allan Gray, Newcrest’s largest shareholder with a 7.36% stake. “It’s not clear to me that this kind of symmetry exists with these deal terms.”
Newcrest shares surged as much as 14.4% to A$25.60, the highest since May 2022, but remained below the implied offer price of $27.16. Shares closed 9.3% higher at A$24.53.
“We think Newcrest is now in play, but if a deal is to be done, it will likely need to be at a higher price,” Morningstar analyst Jon Mills wrote in a note to clients. “Other major gold miners may be interested in Newcrest given the quality of its assets.”
The indicative offer implies a 21% premium to Newcrest’s share price before the bid was announced, materially below the traditional 30% takeover premium, said Mills, who values Newcrest at about A$31 per share.
Newcrest’s operations include its top class Cadia asset in Australia, an expanding footprint in North America and Papua New Guinea, and growth potential in copper, highly prized as key to the energy transition.
The Newmont proposal is via an agreed scheme of arrangement that would need to be recommended by the Newcrest board and subject to due diligence, various regulatory approvals and a shareholder vote that could stretch out for months. Newmont shareholders would also have to approve the deal.
Newcrest shareholders would receive 0.38 Newmont shares for every Newcrest share, giving them a 30% stake in the enlarged miner. It is a 4.7% improvement from a previous offer that was rejected for not providing enough value, Newcrest disclosed on Monday.
LEADERSHIP TURNOVER
Newcrest has been expected to announce a new chief executive this year after Biswas announced his retirement after eight years.
Sherry Duhe, formerly chief financial officer, who joined Newcrest in February last year, is interim chief executive while a global internal and external search for a replacement is underway.
Newcrest has been viewed as a target in recent years given its middling performance, but only a handful of buyers are big it enough to take it out, said an investment banker who was not authorised to speak publicly about the matter.
The all-share nature of the offer meant the timing is more likely to be linked to Newcrest’s leadership vulnerability than a big call on the gold price, but it probably also reflects a constructive view on the precious metal, the banker added.
The gold price appears increasingly likely to break higher, Morgan Stanley said in a note last month, highlighting that its macroeconomists were now forecasting lower rates and a weaker U.S. dollar, in tailwinds for the metal.
Morgan Stanley is looking towards a bull case of spot gold reaching $2,160 in the fourth quarter, up from $1,866 an ounce.
(Reporting by Melanie Burton in Melbourne and Scott Murdoch in Sydney; additional reporting by Sameer Manekar in Bengaluru; Editing by Lisa Shumaker and Jamie Freed)