Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
Newmont Corp.’s $17 billion push to buy Newcrest Mining Ltd. comes as miners wrestle with the reality that gold deposits are small, costly and short in life — while making the case for more diversification.
Without an acquisition, Newmont predicts that its gold production will stay around six million ounces a year for the next decade, the Denver-based company said in a Thursday presentation. The miner has stagnated around that level for the past three years.
“Newmont’s size means M&A is the only route to grow,” said Grant Sporre, an analyst with Bloomberg Intelligence. “They want to become the Exxon of the gold sector — so big that the generalist investor thinks of them when they think of gold.”
A tie-up with Australia’s Newcrest would boost Newmont’s gold output by about a third, based on 2022 production, and give the added bonus of greater exposure to highly sought copper.
Newcrest rejected Newmont’s $17 billion proposal last week, with interim Chief Executive Officer Sherry Duhe saying the company was “worth a lot more”. Newmont CEO Tom Palmer said during a Thursday earnings call that he was “disappointed” by the response and added that he’s still “engaging” with the company.
“Given the challenges gold has currently been facing, there’s never been a better time for Newmont and Newcrest to come together,” Palmer said on the call, adding that a combination would create “an ideal mix of gold and copper, strengthening Newmont’s overall position.”
Palmer’s reference to copper is a sign of how precious metals producers are looking to diversify as margins and revenues take a hit from lower-grade and harder-to-access gold deposits. Copper and zinc often get dug up during gold mining. Both base metals are increasingly coveted as global demand surges for materials that play a crucial role in the global push to electrify transportation and build cleaner energy technologies.
Read more: Barrick eyes Nevada Gold Mines as Newmont ramps up deal pressure
Newcrest produced 121,000 metric tons of copper last year, and expects output to jump as much as 28% this year as demand for the red metal surges.
A combination with Newmont would create a mining behemoth with 20 operating mines in 11 countries, while broadening its appeal to generalist investors that have been elusive to the gold mining sector.
A Newmont-Newcrest merger would, according to CIBC analyst Tanya Jakusconek, create a company with a market value of about $57 billion that mines as much as 8.5 million ounces of bullion a year — enough to break free from Newmont’s gold production rut.
(By Jacob Lorinc)
Related article: Newmont sees ‘significant’ shareholder value in buyout of gold rival Newcrest
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