Vancouver-based Goldcorp bought for $10B
TORONTO — Newmont Mining Corp. has struck a US$10-billion deal to take over Goldcorp Inc. in a move that will see the U.S.based mining giant grow even larger while Canada’s mining industry loses a head office.
Colorado-based Newmont will add Vancouver-based Goldcorp’s seven mines in North and South America to its global operations of 12 operating mines to create a company expected to rival or top Barrick Gold as the world’s largest gold producer.
“This is not a deal we have to do, this is a deal that we want to do,” Newmont CEO Gary Goldberg told a conference call Monday.
The deal follows Barrick Gold’s US$6.1-billion all-stock takeover of Randgold Resources Ltd. that closed at the start of the year to create a company with a combined 2018 gold production guidance of between 5.8 million and 6.3 million ounces.
Newmont Goldcorp, as the new company will be called, said it will target annual production between six and seven million ounces after selling off more than a billion dollars worth of assets in the next two years. Goldcorp said Monday it produced 2.3 million ounces last year, while Newmont has forecasted between 4.9 million and 5.2 million ounces for 2018.
The combined company, to be owned 65 per cent by current Newmont shareholders and 35 per cent by Goldcorp shareholders, will continue to have a significant presence in Vancouver as the designated base of operations for North America.
“The formation of Newmont Goldcorp ensures that Canada will continue to be a pillar of an industry-leading gold company,” Goldcorp CEO David Garofalo said.
He noted the Vancouver office will manage more ounces of gold production and oversee a workforce of more than 10,000, as well as Indigenous community relations and renewed exploration.
“Newmont Goldcorp will also provide prospects for new investment in a reinvigorated exploration program in Canada...with the largest pipeline of feasibility and development-stage assets in the Canadian gold business,” said Garofalo.
The emphasis on a sustained Canadian presence comes after Barrick Gold has been criticized for a hollowing-out of its Canadian footprint following the deal with London-listed Randgold.
Barrick shifted its province of registration to British Columbia to take advantage of less stringent requirements for director residency and now has a slimmed-down Canadian presence on both its board and in management.
Its head office in Toronto is also losing about 100 staff, which will number about 70 by April as it shifts towards a decentralized management model.
The combined Newmont Goldcorp will be led by Goldberg from the Colorado head office, while Newmont’s chief operating officer Tom Palmer is expected to take over the role once the merger is completed later this year.
Newmont chairwoman Noreen Doyle will head the board of the combined company, while Goldcorp chairman Ian Telfer will be deputy chairman.
Newmont said it will apply for a listing on the Toronto Stock Exchange once they close the deal, which will see Newmont exchange 0.328 of a share and two cents in cash for each Goldcorp share for a 17 per cent premium.
The takeover of Goldcorp comes after its shares recently touched 17-year lows as it grapples with production and other issues.
Desjardins analyst Josh Wolfson said the deal looks like an answer to some of Goldcorp’s problems.
“We see the transaction positively for Goldcorp, resolving short-term Goldcorp guidance risk as well as critical strategic and capital allocation questions,” he said in a research note.
Wolfson noted that a critical question for Goldcorp shareholders will be on timing, since Goldcorp is on the cusp of delivering material production growth and free cash flow.
Dean Braunsteiner, PwC Canada’s national mining leader, said a lack of exploration spending in recent years has forced majors like Barrick and Newmont to go hunting for assets through acquisitions. The two deals will likely spur more mergers and acquisitions in the space, he said.
“The two mergers were a catalyst and I would expect that to continue into 2019.”
Both merged companies have talked about selling off non-core assets, which could create opportunities for more mid-tier operators in Canada, said Braunsteiner.
“It is a bit unfortunate that we’re losing a couple of keystone Canadian mining clients, but with that I’d say there’s opportunities for the next one to step up,” he said.
“Maybe this is the right time for the next Canadian mining company to be established, to be the next Barrick in four to five years.”
The Newmont Goldcorp deal has the unanimous support of the directors of both companies, but requires approval by shareholders of both companies as well as regulatory approvals in several countries.
Newmont said it expects to generate up to US$100 million in annualized “synergies” before tax.
Goldcorp’s share price closed up 97 cents, or 7.54 per cent, at $13.83 on the Toronto Stock Exchange. The company’s shares traded at over $50 in 2011.