Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
(This is an extract of the original column published by DBRS Morningstar Canada.)
The merger between large-scale producers across the globe has become a consistent theme in the precious metals sector over the past few years where it also saw the combination of Agnico Eagle Mines and Kirkland Lake Gold that was announced in 2021 and subsequently completed in 2022.
It is worth noting that Kirkland Lake itself became a sizable entity mainly through external M&A transactions. It merged with Newmarket Gold in 2016, which elevated it to an intermediate gold producer, and, with its acquisition of Detour Gold in 2020, Kirkland Lake lifted its production profile to above 1 million ounces per year, thus achieving senior gold producer status.
In 2022, the joint acquisition of Yamana Gold by Pan American Silver and Agnico Eagle Mines was one of the mining industry’s most notable M&A transactions of the year. This transaction received shareholder approval on January 31, 2023, and is expected to close in the first quarter of this year upon the approval from Ontario Superior Court of Justice and Mexican Federal Economic Competition Commission.
For a third consecutive year, the precious metals space could see another merger between two of its largest producers. On February 5, 2023, Newmont Corporation confirmed that it submitted a nonbinding proposal to acquire 100% of the issued share capital of Newcrest Mining Limited by way of scheme of arrangement.
Newmont’s proposal to combine with Newcrest is a share exchange on the basis of 0.380 Newmont shares per Newcrest share, thus valuing Newcrest at $17 billion. The combined company would be 30% owned by Newcrest and 70% owned by Newmont.
Newmont’s proposal is subject to certain customary conditions, including due diligence to the satisfaction of both parties, entry into a scheme implementation agreement, and a recommendation from the Newcrest board of directors that Newcrest shareholders vote in favor of the proposal.
Newcrest confirmed the receipt of the indicative proposal from Newmont on February 6, 2023. It indicated that this was not the first offer that it had received from Newmont. The Newcrest board of directors turned down a previous offer as it deemed the earlier proposal “would not deliver sufficiently compelling value to Newcrest shareholders.”
A formal response on the current indicative proposal is being prepared and it is likely that further discussion at the negotiating table is necessary before a deal is consummated.
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