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.
After promising to sweeten the pot with the largest dividend in 32 years, Newmont Mining Corp. has won over two of its biggest investors — and an independent shareholder advisory firm — to the merits of a $10 billion merger with Goldcorp Inc.
“Paulson & Co. commends the special dividend to Newmont shareholders,” a spokesman said Monday by email. “Since the Newmont board and other significant shareholders are supportive of the revised terms, we will no longer oppose the transaction.”
Earlier, VanEck portfolio manager Joe Foster also praised Newmont’s decision to offer the dividend, saying he now plans to vote in favor of the deal to create the world’s largest gold miner.
On Monday, Foster called the dividend ‘a great precedent for the industry’ that rewards shareholders in advance for $4.7 billion in synergies Barrick has said it expects the joint-venture to create
The comments marked a U-turn from Friday, when both Foster and billionaire John Paulson expressed serious concerns about the price tag on the merger, which was negotiated before Newmont struck a joint-venture deal with Barrick Gold Corp. to combine their lucrative mines in Nevada.
The tie-up also won the support of a prominent shareholder advisory firm, Institutional Shareholder Services Inc., which urged investors in both companies to support the deal.
On Monday, Foster called the dividend “a great precedent for the industry” that rewards shareholders in advance for $4.7 billion in synergies Barrick has said it expects the joint-venture to create.
“We’ve seen many deals before where companies claim they’re going to create synergies,” Foster said in a phone interview. “This is the first time we’ve seen a company actually pay upfront an advanced payment on those synergies.”
VanEck is Newmont’s third-largest shareholder and Goldcorp’s second-biggest, although the value of its Newmont stake is much larger. Paulson said it bought 14.2 million shares of Newmont in 2019, making it one of the miner’s largest shareholders, though it’s not clear whether the hedge fund is entitled to vote those shares. Although Paulson called the special 88-cent dividend “small,” it would be the largest offered by the Greenwood Village, Colorado-based miner since 1987.
Both investors had also objected to compensation packages that would be given to Goldcorp Chairman Ian Telfer and Chief Executive Officer David Garofalo if the deal went through. Foster said he still hopes Vancouver-based Goldcorp will address the issue.
A spokeswoman for Goldcorp said Monday the company declined to comment. Earlier, Goldcorp said in a statement it consented to Newmont’s dividend payment and continues to recommend shareholders vote in favor of the merger.
Newmont rose 1.2 percent to close at $34.90 in New York, while Goldcorp’s U.S. shares climbed 3 percent.
“From my standpoint, I think we’ve done what we needed to do,” Newmont CEO Gary Goldberg said earlier Monday by phone. “It now is up to our shareholders. I’m really looking forward to positive results out of both votes.’’
Separately, ISS urged in investors in both Newmont and Goldcorp to support the merger. Goldcorp’s shareholders are expected to vote on the matter April 4 followed by Newmont’s investors in April 11.
Although there have been concerns about Telfer’s retirement compensation, approval of the deal is still warranted for Goldcorp shareholders, ISS said in its report on that company. The firm also urged investors in Newmont to support the plan after the dividend was announced Monday.
“The company offers a sound strategic rationale, as the combination is expected to create the world’s largest gold miner,” ISS said in its report Monday. “Given these factors, along with the recently added special dividend, support for the transaction is warranted.”
The biggest deal in gold mining history came just three months after rival Barrick agreed to buy Randgold Resources Ltd. for about $5.4 billion.
Barrick subsequently launched a hostile takeover of Newmont that ended with the two miners entering a joint venture and combining their Nevada operations instead. Barrick withdrew its hostile offer at the same time.
Newmont shareholders are scheduled to vote on the deal April 11. The deal requires two votes from Newmont shareholders to pass: one, essentially on the deal, involves issuing shares to Goldcorp holders, while the other increases Newmont’s overall share count. The first vote requires majority approval from those shareholders who vote. The second requires majority approval from all shareholders outstanding, meaning absentee votes count against it.
Newmont has said the merger with Goldcorp will create more than $4.4 billion in value and position the company for sustainable production of 6 million to 7 million ounces a year.
The tie-up would dwarf the $5.4 billion Barrick-Randgold transaction, and may exceed Barrick’s 2006 purchase of Placer Dome Inc. as the gold-industry’s biggest takeover
If the transaction goes through, the combined company will control mines in the Americas, Australia and Ghana. The tie-up would dwarf the $5.4 billion Barrick-Randgold transaction, and may exceed Barrick’s 2006 purchase of Placer Dome Inc. as the gold-industry’s biggest takeover, which had a final value of about $9.6 billion.
“This is a step in the right direction to getting the shareholders over the line who had outlined issues with the share ratio,” said Josh Wolfson, managing director of metals and mining at Desjardins Securities Inc. in Toronto, referring to the special dividend. “I’d say the payment reflects a response to reasonable concerns that were identified by some key shareholders.”
(By Danielle Bochove and Scott Deveau)
