CHARTS: The coming critical minerals trade war is BRICS short of a load
"While a large number of countries around the world continue to talk about securing raw material supply, China is actually doing something about it."
Sherry Duhe has only been in the mining world for a year and half. But she’s already been tasked with steering Australia’s largest gold miner, Newcrest Mining (TSX: NCM; ASX: NCM), through a merger with the world’s biggest gold producer, Newmont Mining (TSX: NGT; NYSE: NEM).
The two gold miners reached a C$21.2-billion deal in May for Newmont to acquire Newcrest at what Duhe describes as a “very healthy” premium.
“It’s all now public knowledge that they came back a number of times and bid again,” Duhe said during an interview with The Northern Miner at the Australia-Canada Economic Leadership Forum in Toronto in July. While she says the early bids were “respectable,” Newmont had to come back quite a few times before Newcrest’s board “felt we could not say no,” she explained. “It needed to be a very healthy price because the company is not in distress and we were not up for sale.”
Newcrest shareholders will vote on the deal in the fall, with the merger expected to close before the end of the year.
Duhe joined Newcrest in February 2022 as CFO before being asked to take on the interim CEO role just 10 months later when former CEO Sandeep Biswas retired amid investor discontent.
Before Newcrest, Duhe spent close to three decades in oil and gas, most recently as CFO and executive vice-president at Australia’s Woodside Energy and before that, with Royal Dutch Shell and others.
While mining has a reputation for being too conservative next to its innovative oil and gas cousin, Duhe doesn’t see it that way.
“Could we be looking across to oil and gas more to think about some of the applications? I think we probably could. But the mentality (in mining) I would say is just as innovation-oriented as in oil and gas.”
The Louisiana native – and now Australian citizen — points to Newcrest’s history as an innovator in block cave mining, a low-cost method of mining underground lower-grade porphyry ore. The company bought a 70% stake in the Red Chris project in British Columbia in 2019 because of the opportunity to apply the same technique, which it’s developed at its Cadia mine in Australia, and which Duhe refers to as Newcrest’s “super power.” A feasibility study on the underground gold-copper development is expected later this year.
Where oil and gas does have mining beat, Duhe says, is in sharing best practices on technology. That happens more often in the energy sector because of more harmonized standards globally and because of the level of risk and danger involved in infrastructure such as offshore platforms and petrochemical complexes, she notes.
“I think that all mining companies, regardless of what country you operate in, should be sharing best practices with each other. That’s because we’re in this race against time to try to develop more mines more quickly. We all win if we find better, safer, faster, more cost-effective ways to get, in particular, these critical minerals out of the ground.”
Unfortunately, Duhe sees little sense of urgency across jurisdictions – Canada and Australia included — when it comes to accelerating permitting.
“None of us have been progressing at the speed that we need to,” she said. Instead, regulatory approvals, and funding for projects have been slowing down rather than speeding up.
“We’re going to need to produce, as a global industry, more copper in the next 27 years than we have produced in the last 125 years combined,” she says, describing copper as Newcrest’s “key product.”
But wait – isn’t Newcrest a gold miner?
Like others in the gold space, Newcrest has been leaning more heavily into copper. The red metal has both the supply and demand fundamentals on its side, and the “green” sheen as a metal that’s essential to electrification and the energy transition.
“We are a gold company,” Duhe confirms, clarifying that copper is the company’s key critical minerals product.
“We are, however, 25% copper today, which is one of the larger concentrations of copper production in a gold producing entity.”
Copper and gold are often found together, including at two of Newcrest’s major projects: Red Chris underground and its 50%-owned Wafi Golpu project (held with Harmony Gold) in Papua New Guinea. If the company moves forward with both projects, its copper exposure would double. Depending on copper prices, Duhe says they could tilt Newcrest’s metals balance to 50-60% copper production by around 2030.
“And strategically, our board has not put a ceiling on copper exposure in the portfolio, so we could go even higher than that, if we found the right organic opportunities.”
Duhe says the company doesn’t expect gold to have the same “exponential growth pattern” as copper. “In the future, (copper) could become the mainstream product with gold as a very valuable byproduct.”
It’s likely one of the biggest factors behind Newmont’s pursuit of Newcrest. The combined company is expected to churn out around 8 million oz. gold and 350 million lb. of copper annually. Newmont expects to produce around 6 million oz. gold and 100 million lb. copper this year while Newcrest reported 2.2 million oz. gold and 133,000 tonnes copper (293 million lb.) for the year ending June 2023.
Newmont’s expected to shed some of the combined company’s smaller assets, post-merger, but not likely either of Newcrest’s Canadian assets.
In B.C., Newcrest’s Brucejack gold mine, bought in 2021 through a C$3.5-billion takeover of Pretium Resources, produced 350,000 oz. gold this year, and mining at Red Chris could be sustained for at least another three decades with underground development.
When it acquired its majority interest in Red Chris, Newcrest signed an “IBCA” with the Tahltan Nation. That’s a regular impacts and benefits agreement with the added “C” being co-management, which takes Tahltan participation well beyond just employment and opportunities for contracts with the operation.
“It really allows them to be very involved in thinking about how we’re operating today in the open pit side of things, but then also the scope and the delivery methods and the project plans for the block cave, how they can participate in that,” Duhe says.
Both the community and Newcrest want to maintain the relationship through the merger, she adds.
“They want to make sure that that positive relationship is transitioned over to Newmont and then nothing is lost in terms of all the years of work and commitment that we put into really making it be a partnership and the collaboration,” Duhe says.
Culturally, Newcrest and Newmont are likely to be a good fit. Newcrest was created in 1966 as a subsidiary of Newmont, then spun out and combined with some BHP Australia assets in 1990.
There’s something gratifying about the “parent” coming back for the “child” more than 30 years later, Duhe says.
“Today, Newcrest has an almost completely different set of assets, but also the superpower of block caving and one of the best copper growth portfolios out there,” she says. “I think our people can be incredibly proud that in 30 years’ time we built ourselves up to being (one of) the world’s largest gold companies and one that the largest companies in the world wanted back so much that they just kept bidding against themselves until they got us.”
