LAWRIE WILLIAMS: Gold mining industry’s biggest merger yet
Yesterday's announcement that the world’s No. 2 gold miner, the U.S.’s Newmont Mining, proposes to acquire world No. 4 producer, Goldcorp, in an agreed deal would, assuming it all goes ahead, be the largest gold mining merger yet. The deal is valued at around US$10 billion, and the merged company would also leapfrog in size the new larger Barrick, after its Randgold acquisition, as comfortably the world’s biggest gold miner in terms of annual gold production. The combined current annual gold output of Newmont and Goldcorp is between 7 and 8 million ounces, although in the statement on the acquisition proposal the long term gold output is put at around 1 million ounces lower suggesting planned, or regulatory body-enforced, divestitures of some quite large current gold mining operations which might be considered non-core after the deal is finalised.
Unlike the Barrick Goldcorp merger, which implemented some major management directional changes with the smaller company’s top management taking over, Newmont Goldcorp would come under the overall control of the existing Newmont management. However operational management would be more diverse with the key North American division (including the big U.S. mines), which accounts for nearly half the combined company's gold output, falling under the management control of the Vancouver, BC regional office. There is no news yet, though, of any management personnel moves from Denver to Vancouver that might accompany the change of venue control.
In part the uprating of the Vancouver office may be an attempt to mollify Canadian regulators who might oppose a Canadian major falling under U.S. control.
In similar fashion with regard to regional diversification, Latin American operations would be managed out of a regional office located in Miami, a city which has been referred to as the ‘capital of Latin America’ due to its many direct transport links with the Central and South American Sub-continents and the Caribbean, while Australian operations would be managed out of Perth and Africa (all Ghana) out of Accra. This regional office set-up looks as though it might make making management efficiencies more complicated.
What effect would this proposed merger have on global gold production? Probably little or none with any divestitures being snapped up by mid-tier gold miners or other majors which might feel they have a better fit with their own operations. Indeed these might add to global gold output with new ownerships identifying opportunity enhancements at newly acquired projects.
The proposed merger looks unlikely to be finalised until Q4 this year with shareholder approvals and regulatory hurdles to be overcome. The latter are likely to be far more complex than with the Barrick Randgold merger as in the case of the latter there were no area-related issues with regard to operations controlled by the two companies.
According to the statement on the proposed acquisition, Newmont Goldcorp’s reserves and resources would represent the largest in the global gold sector and would be located in favorable mining jurisdictions in the Americas, Australia and Ghana, representing approximately 75 percent, 15 percent and 10 percent, respectively. Newmont Goldcorp would prioritise project development by returns and risk, while targeting $1.0 to 1.5 billion in divestitures over the next two years. The statement goes on to claim that supported by stable, profitable long-term production and an investment-grade balance sheet, Newmont Goldcorp would be capable of generating robust free cash flow and have the financial flexibility to fund project development and exploration in the decades ahead.