Rejected offer triggers expectations of a new wave of industry consolidation

Newmont’s $17bn offer for Newcrest this month has sent tremors through the gold mining industry, lifting expectations of a new wave of consolidation and reanimating longstanding corporate rivalries. While the US company’s all-share offer was unanimously rejected by its Australian rival’s board, the world’s largest gold mining group will now gain access to non-public information to allow it to decide whether to make an improved bid. “This was an unsolicited offer. The company has not been put up for sale, and we have rejected their offer,” said Sherry Duhe, interim chief executive of Newcrest, on an earnings call. “We’ve offered some access to limited non-public data to Newmont. It is to them to decide if they want to take us up on that offer and then for us to discuss what that might look like.” The Newmont offer, which would have created a sector giant with a market capitalisation of $54bn, has sparked a renewed buzz that M&A is coming to a sector stung by investor apathy after years of overspending and poor returns. “It’s monkey see, monkey do,” said John Hathaway, senior portfolio manager at Sprott Asset Management. “The investment bankers get lathered up and the phones are ringing off the hook to keep the pot boiling.” Four years after Barrick Gold launched a hostile $18bn takeover attempt for Newmont, the fighting talk between the two rivals that first considered a merger in 2014 has been rekindled. Mark Bristow, chief executive at the world’s second-largest producer, made a veiled dig at Newmont when delivering its full-year results last week, saying it had “always believed that discovering ounces was better than buying them at a premium”. However, after Barrick’s production of the yellow metal hit a 22-year low last year, he told the Financial Times there was an “enormous amount of logic” to reaching a sufficient market capitalisation to draw in passive investor funds and open up the stock to generalist investors. “One big discovery or smart acquisition can deliver that growth,” he said. Neal Froneman, chief executive of Sibanye-Stillwater — which is one of the world’s largest precious metals producers and is shifting towards battery metals — said he saw the need for further consolidation in a fragmented gold sector. The seasoned dealmaker told the FT he was open to rebooting his proposal to create a South African gold champion through a three-way merger with AngloGold Ashanti and Gold Fields, which last year failed in an attempt to buy Canada’s Yamana Gold last year. “Right now we have three South African companies that are not material in their own right,” he said. “We could create a South African champion that could be relevant and we should do it . . . if there’s a willingness from any other parties, then we would be happy to consider it.” However, both AngloGold and Gold Fields rebutted the suggestion. “We’ve been very clear that our focus is internally on improving our cost position relative to our peers,” said Alberto Calderon, chief executive of AngloGold. A spokesperson for Gold Fields, who originally owned the mines that were used to create Sibanye-Stillwater in 2013, said “it makes little sense for us and we have no interest in getting involved with them at the moment”. There has already been one takeover in the sector since Newmont’s offer for Newcrest, with B2Gold, whose portfolio of mines spans Mali, the Philippines and Namibia, agreeing to buy Canada’s Sabina Gold & Silver in a deal valued at $824mn. Hathaway said more deals were likely — particularly single-asset companies being swallowed up by larger groups. But he warned: “Whether these mergers make sense is another question.”

Source: Financial Times

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