Canadian miner Newmont’s acquisition of Newcrest Mining has solidified its position as the world’s largest gold producer with pro forma attributable gold production of more than 8 million ounces, almost double that of the second largest producer Barrick Gold, analysts at Canaccord Genuity (TSX:CF, LSE:CF) have highlighted.
Newmont announced on Sunday evening that it has reached an all-share, friendly acquisition deal with Australian gold and copper miner Newcrest, which the analysts noted was in line with the best and final offer previously indicated by Newmont on April 10.
Newcrest shareholders will receive 0.4 Newmont shares for each Newcrest share and a special dividend of up to $1.10 per share, a 30.4% premium to Newcrest’s share price on February 3, 2023.
Newmont and Newcrest shareholders will own 69% and 31%, respectfully, of the combined entity the analysts noted.
Canaccord’s analysts wrote that, including by-product production, Newmont’s total gold equivalent ounces would increase to about 10 million ounces from about 7 million ounces currently as a result of the deal.
“Newmont's production base in Australia would increase about 1 million ounces per year to 2.4 million ounces and in Canada to 1.1 million ounces from 0.7 million ounces currently,” they wrote.
“We note that Papua New Guinea will be a new jurisdiction for Newmont but would represent greater than 10% of pro forma gold production. That said, we expect that Newmont could potentially sell off some of the smaller assets in the combined portfolio.”
The analysts also noted that the transaction adds significant life-long assets to Newmont’s portfolio.
“Newcrest's assets include Cadia in Australia that has more than 30 years of reserve life, Lihir in Papua New Guinea with more than 20 years and a 70% interest in the Red Chris mine in British Columbia with an estimated underground mine life of 31 years,” they wrote.
“Newmont would also be able to leverage Newcrest's experience in block caving.”
$500M in annual synergies expected by Newmont
The analysts added that they view the transaction as modestly accretive to Newmont's net asset value (NAV) and neutral on earnings before interest, taxes, depreciation, amortization (EBITDA) and cash flow per share pre-synergies.
“Newmont expects to realize annual synergies of $500 million (pre-tax) within the first 24 months following the completion of the transaction,” they pointed out.
“The synergies include $100 million of pre-tax general and administrative savings, $200 million in supply chain synergies, and at least $200 million in benefits from Newmont's Full Potential improvement program.”
Following the acquisition announcement, Canaccord’s analysts reiterated their ‘Buy’ rating and price target of US$63 on Newmont.
“Our target price is predicated on a 50/50 blend of a 1.2x multiple applied to our operating NAVPS estimate plus net debt and other corporate adjustments, and an 8.0x multiple applied to 2024E EBITDA,” they explained.
They do not provide coverage on Newcrest.
Newmont’s shares added 2.8% at US$47.24, while Newcrest was up 3.6% at US$19.49 on Monday afternoon in New York.