Newmont Mining (NYSE: NEM) will acquire all outstanding Goldcorp (TSX: G; NYSE: GG) shares in a deal that values Goldcorp at US$10 billion to create Newmont Goldcorp, the companies announced Jan. 14, 2019.
Newmont Goldcorp will be the world's largest gold company by gold production, free cash flow and enterprise value, defined as market capitalization plus net debt.
In 2017, the two companies produced a combined 7.9 million oz. gold. The new company is targeting 6 million to 7 million oz. gold annual production going forward, which would put it on par with Barrick Gold (TSX: ABX; NYSE: GOLD) in that category. Based on 2017 data, the new company will generate more than US$1.6 billion in free cash flow and have a US$32-billion enterprise value.
Barrick and Randgold merged last year in an $18.3-billion deal that valued Randgold at US$6.5 billion. The new Barrick has the highest margin for adjusted earnings before interest, tax, depreciation and amortization (EBITDA) among senior gold companies.
Under the latest deal, Newmont will acquire all outstanding Goldcorp shares for 0.328 of a Newmont share and 2 ? for each Goldcorp share. The deal represents a 17% premium based on the companies' 20-day, volume-weighted average share price on Jan. 11, 2019.
"This is not a deal that we have to do, this is a deal that we want to do," Newmont CEO Gary Goldberg said during a conference call hosted by Newmont and Goldcorp.
The two companies expect the deal to close in 2019's second quarter. Newmont and Goldcorp shareholders will own 65% and 35% of the new company.
Newmont Goldcorp expects to divest between US$1 billion and US$1.5 billion in assets over the next two years. It has not said which assets it might sell.
"We're going through a process similar to what we followed over the last six years at Newmont, looking at value and risk, looking at whether we can improve the value or reduce the risk on assets and then make a decision as to which assets we would continue to operate or not," Goldberg said.
In 2017, Newmont and Goldcorp produced 5.3 million oz. gold and 2.6 million oz. gold. They closed 2017 with 68.5 million oz. gold and 52.8 million oz. gold in reserves and 34.2 million oz. gold and 35.2 million oz. gold in resources. That year, Newmont and Goldcorp recorded US$2.6 billion and US$1.7 billion adjusted EBITDA and US$774 million and US$658 million in net income. In a research note, Moody's Investors Services points out that the new company will have the largest reserve and resource base of all global gold mining companies.
While Goldcorp has not provided its 2019 production guidance - it cancelled its Jan. 18, 2019 Investor Day - Newmont earlier announced it expects to produce 5.2 million oz. gold in 2019, with production declining to 4.9 million oz. gold in 2020, and as low as 4.4 million oz. gold by 2023.
Goldcorp produced 2.2 million oz. gold in 2018 while Newmont produced 3.6 million attributable oz. gold in the first three quarters of 2018, but has not yet announced its 2018 full-year production numbers.
Goldberg and Newmont president and chief operating officer Tom Palmer will keep their roles in Newmont Goldcorp and pick the other management members. The companies expect to finish merging by 2019's fourth quarter, at which point Goldberg plans to retire, and Palmer will become Newmont Goldcorp's president and CEO.
Goldcorp chairman Ian Telfer will become deputy chair of the enlarged company while Newmont chair Noreen Doyle will remain chair.
There doesn't appear to be a place for Goldcorp president and CEO David Garofalo in the new company, though he is reportedly due to receive at least US$6.9 million upon his exit.
Newmont Goldcorp will be a Delaware corporation, still listed on the New York Stock Exchange under the symbol "NEM," with its headquarters remaining in the Denver suburbs.
Goldcorp's Vancouver headquarters will become the new entity's North American regional office, overseeing Canadian and American operations, and the two companies say the new board will maintain a "significant Canadian presence," comprising two-thirds Newmont members and one-third Goldcorp members. The new company will also seek a listing on the Toronto Stock Exchange.
"At first blush, I like the deal for several reasons," Franco-Nevada (TSX: FNV; NYSE: FNV) chairman Pierre Lassonde tells The Northern Miner. He served as Newmont's president from 2002 to 2007.
"Newmont will have 80% of its assets in tier-one countries, so very low political risk. And 35% of the board will be coming from Goldcorp. That's awesome, compared to Barrick."
Newmont has 12 mines across the U.S., Peru, Suriname, Ghana and Australia. Goldcorp has seven mines across Canada, Mexico, Dominican Republic and Argentina. Both companies have several near-mine and greenfield exploration projects. The companies say they will continue investing in projects that meet a 15% returns hurdle rate.
"This was a unique opportunity to provide us with the technical and financial firepower to advance our robust project pipeline," Garofalo said.
Goldcorp shares jumped nearly 10% to $14.45 per share on the news, while Newmont shares fell 9% to US$31.67 per share.
Shares of Goldcorp are trading at $13.77 with a 52-week range of $11 to $19.32. The company has a $12-billion market capitalization.
Shares of Newmont are trading at US$31.88 with a 52-week range of US$29.06 to US$42.04. The company has a US$17-billion market capitalization.
"Newmont's execution is legendary," Lassonde says. "They will fix whatever ailed Goldcorp.
"Frankly, Telfer did a great job for his shareholders."