Why Did Newcrest Reject Newmont’s $16.9-Billion Acquisition Offer?

Australian miner Newcrest Mining (TSX: NCM) announced last night that it has rejected the acquisition offer from Colorado-based gold producer Newmont Corp (NYSE: NEM) with its current price tag equivalent to $16.9 billion.

According to the Indicative Proposal, Newcrest shareholders would get 0.380 Newmont shares for every Newcrest share held. Based on the last closing price of Newmont shares and the AUD:USD FX rate as of 3 February 2023, the proposal reflects a current offer price of A$27.16 per Newcrest share–a 21% premium to Newcrest’s closing price of A$22.45 per share.

“The Board has considered the Indicative Proposal and has unanimously determined to reject the offer as it does not represent sufficient value for Newcrest shareholders,” the company said in its statement.

The proposal was the second offer the Colorado miner gave after Newmont initially made a proposal to acquire Newcrest at an exchange ratio of 0.363 Newmont shares for each Newcrest share. However, the Newcrest board deemed the proposal “would not deliver sufficiently compelling value to Newcrest shareholders” and rejected the first offer.

Since the announcement of the $16.9-billion bid, Newcrest shares have increased to as much as A$25.60 per share, before trailing back to A$23.90 as of last closing.

After two rejected proposals, the Australian miner added that it would give Newmont access to the company’s “limited, non-public information on a non-exclusive basis” so that it can provide an improved proposal “that appropriately reflects the value of Newcrest.”

Observers wonder if either Newmont isn’t privy to the value of Newcrest or the Colorado miner made the proposal without looking at the acquisition target’s fundamentals.

“Not enough”

Alongside the announcement of rejecting Newmont’s proposal, Newcrest released preliminary production results for the first half of its fiscal year 2023, touting it is “on track to deliver FY23 guidance.”

“Newcrest had a solid first half operationally, producing 25% more gold and 32% more copper compared to the same period last year and delivering a healthy All-In Sustaining Cost margin of $585 per ounce, as we remain focused on disciplined financial management across our global portfolio,” the miner reported.

The firm ended the first half of fiscal 2023 with production of 1,039,245 gold ounces, revenue of $2.12 billion, and EBITDA of $919 million–all are around 24%-25% increases from the comparable period last year.

“Newcrest is in an excellent position, and with positive momentum for gold and copper prices continuing into 2023, we look forward to a stronger second half of the year,” said Interim CEO Sherry Duhe.

For the full fiscal year, the Australian miner’s guidance projects gold production at around 2.1 million – 2.4 million ounces. The solid performance for the past six months is giving Newcrest a boost in confidence to evaluate how much they’re worth compared to Newmont’s offers.

Tim Wood, portfolio manager at Investors Mutual, thought the Newmont offer was not high enough.

“We still don’t think the current bid is high enough, particularly as it comes with significant risk for shareholders around the price of Newmont shares and AUD/USD currency fluctuations,” said Wood.

For Newcrest, the board believes the Newmont offer isn’t sufficient to provide the value it thinks its shareholders deserve. But how much? That’s for the Colorado miner to figure out.

“The Board considers Newcrest to be uniquely positioned with a portfolio of long-life Tier 1 gold and copper assets, with increasing copper exposure and a high-quality development pipeline,” the company said.

Information for this briefing was found via Financial Review and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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