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."
A month after Newcrest Mining (TSX: NCM; ASX: NCM) rejected a $17 billion takeover bid from Newmont Mining (TSX: NGT; NYSE: NEM), the two are to discuss a potential deal, Australian Financial Review reported on Monday.
The two gold miners reportedly signed non-disclosure and standstill agreements, enabling the companies to meet in person and consider the price required for a deal to get off the ground.
Newcrest rebuffed Newmont’s initial offer in mid-February, with Newcrest interim chief executive officer Sherry Duhe suggesting the company is “worth a lot more” than what Newmont offered. “We had not put the company up for sale, and this offer was unsolicited,” Duhe told Bloomberg.
Newcrest comes into any deal showcasing its suite of gold and copper mines and projects in Australia, Canada and Papua New Guinea, while Newmont highlights its position as the world’s largest gold mining company.
Combining Newcrest and Newmont would create an Australian gold mining giant through the largest mining transaction in the country’s history. Newcrest’s Cadia and Telfer gold mines will ostensibly complement Newmont’s Boddington and Tanami gold operations in Western Australia and the Northern Territory.
Newmont also has a strong footprint in Africa, North America and South America to accompany Newcrest’s international assets.
Barrick Gold (TSX: ABX; NYSE: GOLD) chief executive Mark Bristow spurned the idea that his company would bid for Newcrest. At a mining conference in Cape Town last month, Bristow said it “didn’t make sense right now.”
Combining Newcrest and Newmont would bring them back together after almost 25 years. Melbourne-based Newcrest was established in the 1960s as Newmont’s Australia arm, and it spun out in 1990 after it merged with BHP’s (NYSE: BHP; LSE: BHP; ASX: BHP) historic gold assets.
Newmont tabled an offer that would see Newcrest shareholders receive 0.38 of a Newmont share for each Newcrest share. This followed an earlier proposal comprising 0.363 of a Newmont share for each Newcrest share.
On Tuesday, Newcrest released an exploration update for its 70%-owned Red Chris gold-copper mine in British Columbia, demonstrating growth potential it believes Newmont is discounting in its overtures.
The major announced a “substantial discovery’ at the Red Chris East Ridge exploration target. It projects the deposit to hold between 400 million tonnes of material grading 0.42 gram gold per tonne and 0.49% copper for 5.4 million oz and 1.9 million tonnes of metal, respectively, and 500 million tonnes of material grading 0.39 grams per tonne and 0.47% copper for 6.1 million oz. and 2.3 million tonnes of metal.
The exploration target estimate excludes existing NI 43-101 resources and the company says it is encountering higher grades at depth. The resource target gives a glimpse of significant mine life extension potential if drilled out and included in an official resource estimate. As of June 2022, Red Chris had 670 million tonnes of underground material grading 0.46 gram gold per tonne and 0.4% copper for 10 million oz. and 2.7 million tonnes of metal, respectively, in the combined measured and indicated categories.
Newcrest says the drilling indicates the East Ridge target could contain higher gold and copper grades than the current mine plan’s second East Zone block cave.
The East Ridge mineralization could provide future mining optionality to reprioritize block cave sequencing and target these higher-grade tonnes after the first East Zone block cave to add value at Red Chris. It could also offer the potential for a second production front in parallel to the central underground development, Newcrest suggests in its news release.
Drilling is ongoing at East Ridge, located next to the East Zone, with 71 holes completed and 5 in progress.
At least 10 additional diamond drill holes are planned to test and close out the exploration target and determine geotechnical and metallurgical characteristics. This drilling program is expected to be completed by June and feed into a refreshed Red Chris resource statement by year-end.
Newcrest had also recently pulled the trigger on the Phase 14A expansion of the Lihir mine in Papua New Guinea. In February, the board endorsed its Phase 14A feasibility study. The decision will deliver higher gold production and may extend the mine life.
Newcrest’s Toronto-quoted shares last traded at C$22.62, about 6% down from a year-earlier for a market cap of C$20.2 billion, with Newmont’s equity on the same exchange down about 1.6% on early afternoon trading at C$60.89, giving it a market cap of C$48.6 billion.
