Newmont defends Goldcorp deal
‘This is going to position the company as the go-to gold company,’ CEO explains
Market reaction to his company’s US$10-billion bid for Vancouverbased Goldcorp Inc. has been less than enthusiastic, but it hasn’t been enough to dampen the mood of the man behind the mega-deal, Gary Goldberg, chief executive of Colorado-based Newmont Mining Corp.
The day after announcing the takeover, his company ’s stock continued to slide, falling 2.4 per cent to US$31.02 in New York, after slipping 8.9 per cent on Monday; Goldcorp also traded down, losing 2.2 per cent to $13.53 in Toronto.
Reaction to the deal looked mixed. One analyst raised questions about the rationale for the deal and another suggested the price was too low and Goldcorp could attract other bidders. Yet Goldberg insisted none of it was surprising or unnerving in the slightest.
“I think, at this stage, because there was very little market noise in advance, we’re really getting people up to speed, and explaining it,” Goldberg said Tuesday.
Under the deal, Newmont will acquire each Goldcorp share for 0.328 of a Newmont share plus two cents cash — a 17-per-cent premium to Goldcorp’s volumeweighted trading price, which had already been beaten down in 2018 from above $19 last January to about $13 by December.
Goldberg says the rationale for buying Goldcorp is simple: Combining its portfolio of mines with Newmont’s portfolio creates value for investors, including US$100 million in annual synergies.
By applying the Newmont approach to Goldcorp’s portfolio of mines and development properties, Goldberg said he can create a company, to be called Newmont Goldcorp, that will sustainably produce six to seven million ounces of gold per year. “We strongly feel this is going to position the company as the go-to gold company going forward,” he said.
The transaction was not about “getting bigger,” he said. Rather it is about taking Goldcorp’s assets and re-evaluating the sequence of mines in development to create value. Beyond that, he declined to provide any specifics.
Not all analysts find the rationale compelling.
CIBC Capital Market’s Anita Soni thinks that the “uncertainty ” surrounding Goldcorp’s long-term production and cost outlook could create an overhang on Newmont’s share price.
“We are downgrading Newmont from outperformer to neutral until the company provides additional clarity on its strategic plans,” Soni said in a note to clients on Tuesday.
Michael Siperico, of Macquarie Capital Markets, upgraded Goldcorp to outperform from neutral because another potential bidder could emerge.
“I think this is a classic case of missing the forest for the trees and not really putting the transaction in the proper context,” Siperico said about the negative market reaction to the deal.
He said that the rise of exchangetraded funds and metal royalty companies in the past decade has increased competition among gold companies to attract investors. In this context, many institutional investors looking for exposure to gold through mining companies want the least risky option.
Newmont, which has announced expected production of five million ounces of gold in 2019 from its own assets, is already one of the largest — if not the largest — gold companies in the world and the only company on the S&P 500, Siperico said. It is already big enough, with enough liquidity to attract investors, he said.
But he added that smaller companies with less liquidity might gain more value by combining with Goldcorp.
Given that Newmont is offering a 17-per-cent premium on Goldcorp’s stock when it’s trading near a historic low, Siperico suggested the price was low and that Barrick Gold Corp., Agnico Eagles Mines Ltd. and other gold companies could afford to pay more for Goldcorp and still gain value.
“I’m nominally a fan of the deal,” he said. “I’m just saying I can see more compelling reasons for an interloper to come over the top. It’s a relatively slim premium.”
Barrick and Agnico did not provide comment. But Newmont’s deal with Goldcorp is not expected to close until the second quarter of 2019 at the earliest, which leaves several months for a new bidder to consider the deal.
Goldberg said he was busy making plans to integrate the two companies, and to introduce his successor, Tom Palmer, Newmont’s chief operating officer, to the company’s investors. As part of the deal, Goldberg said he agreed to stay until the end of 2019 but then Palmer will takeover as chief executive. “I think in general this is moving as expected,” he said.