Newmont may need to sweeten $16.9 billion bid for gold rival Newcrest By Reuters

By Melanie Burton and Scott Murdoch

MELBOURNE (Reuters) -U.S.-based Newmont Corp’s $16.9 billion offer for Newcrest Mining (OTC:) Ltd, an acquisition that would create a gold mining behemoth, may be too low in the wake of a leadership change at the Australian company, investors and analysts said.

Already the world’s largest gold producer by market value and ounces produced, Newmont would produce nearly twice as much of the yellow metal as rival Barrick Gold (NYSE:) Corp if the Newcrest deal went through. The offer, however, reinforces long-standing fears that gold acquisitions destroy rather than create shareholder value.

Shares of Newmont were trading more than 4% lower at $47.67 on Monday.

“Other bidders could emerge, and a modestly higher price is likely needed for Newmont to get this deal done,” said Chris LaFemina, an analyst at Jefferies, who cut his price target on Denver-based Newmont by 12% to $50 on the prospects of a bidding war.

Newcrest is seeking a replacement for former Chief Executive Officer Sandeep Biswas, who stepped down in December. In the meantime, the outlook for gold prices is improving on expectations that global interest rates will peak this year and then turn down.

If successful, the all-share deal would be the largest mining takeover and the third-largest corporate buyout in Australian history, according to Refinitiv data.

Newcrest, which was spun out of Newmont in the 1990s, has said it is considering the proposal. Newmont, which described the combination as “a powerful value proposition,” declined to make any of its executives available for an interview on Monday to discuss the proposed deal.

The initial feedback from shareholders is that they want a higher price, according to a person familiar with Newcrest’s deliberations.

“A good litmus test for a reasonably-priced deal is one where both seller and buyer feel somewhat aggrieved by selling out too low or by paying too much,” said Simon Mawhinney, chief investment officer at Allan Gray, Newcrest’s largest shareholder with a 7.4% stake. “It’s not clear to me that this kind of symmetry exists with these deal terms.”

Newcrest shares surged on Monday as much as 14.4% to A$25.60, the highest since May 2022, but remained below the implied offer price of $27.16. Shares closed 9.3% higher at A$24.53.

“We think Newcrest is now in play, but if a deal is to be done, it will likely need to be at a higher price,” Morningstar analyst Jon Mills wrote in a note to clients.

The indicative offer implies a 21% premium to Newcrest’s share price before the bid was announced, materially below the traditional 30% takeover premium, said Mills, who values Newcrest at about A$31 per share.

Newcrest’s operations include its top-class Cadia asset in Australia, an expanding footprint in North America and Papua New Guinea, and growth potential in , highly prized as key to the world’s energy transition.

Newcrest shareholders would receive 0.38 Newmont shares for every Newcrest share, giving them a 30% stake in the enlarged miner. It is a 4.7% improvement from a previous offer that was rejected for not providing enough value, Newcrest disclosed on Monday.

Newmont itself fended off an $18 billion hostile bid from Barrick in 2019.

LEADERSHIP TURNOVER

Newcrest is expected to announce a new CEO this year after Biswas announced his retirement after eight years.

Sherry Duhe, who joined Newcrest in February 2022 and had served as its chief financial officer, is the interim CEO while a global internal and external search for a replacement is underway.

Newcrest has been viewed as a target in recent years given its middling performance, but only a handful of buyers are big enough to take it out, said an investment banker who was not authorized to speak publicly about the matter.

The all-share nature of the offer meant the timing is more likely to be linked to Newcrest’s leadership vulnerability than a big call on the gold price, but it probably also reflects a constructive view on the precious metal, the banker added.

Sibanye-Stillwater Ltd Chief Executive Neal Froneman told Reuters on Monday he was not interested in bidding for a gold company and would focus on building a “geographically diverse green metals company.”

Gold prices fell to two-and-a-half-year lows around $1,615 an ounce last fall as rising interest rates pushed up bond yields and strengthened the dollar, making gold less attractive to investors. Prices have since recovered to around $1,850 as markets anticipate the end of rate increases, but most analysts expect gold price gains to be limited while borrowing costs remain high.