(Bloomberg) -- Newmont Corp.’s $17 billion push to buy Newcrest Mining (OTC:NCMGF) 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 (NYSE:XOM) 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.
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.
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