Newmont Mining to buy Goldcorp in US$10B deal
TORONTO As Newmont Mining Inc.’s chief executive Gary Goldberg hawked a proposed US$10 billion all-stock purchase of Vancouver-based Goldcorp Inc.to his investors on Monday, he and his team emphasized massive gold production, a focus on mines in the safest jurisdictions in the world and continued investment in Canada.
“This is not a deal we have to do, it’s a deal we want to do,” Goldberg said of the deal that saw Newmont’s stock fall nearly nine per cent to close at US$31.78 in New York.
Newmont and its chief rival, Barrick Gold Corp., have long competed to be the largest gold producer in the world, and now both have turned to mega-mergers to expand their hulking profiles. But the deals each company struck reveal differences in strategy that are likely to become more apparent as they confront the challenges of continuing to grow while producing millions of ounces of gold per year.
Indeed, Newmont’s move was in stark contrast to that of Barrick, which this month completed a US$6.1 billion all-stock takeover of Randgold Resources Ltd., and has reduced its presence in Canada and grown in more risky jurisdictions.
Some analysts were left wondering about whether, in Newmont’s case, bigger means better.
“I can’t see why Newmont did it,” said Ted Hirst, a managing director of investment banking at Canaccord Genuity. “Their strategy has been very sound. I guess what they’re saying now is bigger is linked towards better.”
Press releases about the mergers revealed other differences as well: Colorado-headquartered Newmont emphasized it is targeting production at an unprecedented six million to seven million ounces of gold per year for at least a decade, making Newmont Goldcorp, as the new company will be called, the largest gold mining company in the world, while also delivering the highest dividend in the industry.
It also announced it is moving its North American regional operations office to Vancouver from Nevada.
In announcing its deal with Randgold, Toronto-based Barrick emphasized it was creating a company with low costs and high cash flows. It specifically downplayed any references to its ounce production, noting it was focused on free cash flows.
On Monday, a Barrick spokesperson declined to answer questions about its expected production in 2019.
Barrick has also been conducting layoffs at its corporate headquarters in Toronto, instead advocating for more management at the site of the mines.
Hirst noted the industry is still shaking off the hangover from a spate of mergers not quite a decade ago that left many companies carrying heavy debt loads or facing challenges to build or operate new mines. That’s meant risk mitigation is more important than ever and the two companies are taking a different approach.
Newmont has stressed its combination creates a company with mines in stable jurisdictions including about half in Australia, Canada or the U.S., and the rest mainly in Latin America. Meanwhile, Barrick’s purchase of Randgold meant it was acquiring an Africa-centric company with mines in Cote d’Ivoire, the Democratic Republic of Congo and Mali.
But Hirst said he preferred Barrick’s deal because it brought Randgold’s chief executive Mark Bristow to the helm of the company, and he has a track record of successfully operating mines even in politically risky jurisdictions, including the Democratic Republic of Congo.
“They’ve got the right guy in charge,” said Hirst. “I do believe the jockey matters. I think he knows how to go through these companies and reduce costs.”
Goldberg, who also has a successful track record of operating mines, has said he plans to leave before the end of the year as part of a succession plan announced in 2018. Views about the deal were mixed. “The merger with Newmont is only a victory for shareholders in as much as it eliminates another gold company with executive incentives that are grossly misaligned,” the Shareholders’ Gold Council said in a statement.
Pierre Lassonde, former president of Newmont and the chairman of the metals streaming company Franco-Nevada Corp., has been critical of Barrick for reducing its presence in Canada including through layoffs and board turnover.
Lassonde agreed that leadership is key, but noted Goldberg’s replacement Tom Palmer, the chief operating officer, hailed from a mining background and said he prefers Newmont’s risk profile and approach.
“They end up paying a dividend that is better than Barrick-Randgold, plus they’re in locations that are superior,” said Lassonde, who said he is not invested in any of the companies.
Still, the merger suggests the gold sector is slowly plodding toward consolidation as many executives and bankers for months have been predicting would happen.