March 2023
Newmont’s US$17bn offer for Newcrest last month has lifted expectations of a new wave of consolidation, particularly at the big end of the gold sector. While the US miner’s all-share offer was unanimously rejected by its Australian rival’s board, the world’s largest gold miner will now gain access to non-public information to allow it to decide whether to make an improved bid.

The Newmont offer, which would have created a sector giant with a market capitalisation of US$54bn and combined production of as much as 8.5Moz, has reignited interest in a sector which investors had been tiring of following years of overspending and poor returns.

That would surpass Barrick’s US$32bn market capitalization and end years of vying for the title of world’s most-valued gold miner. The flurry of activity is happening as producers struggle with higher operating costs, declining output, and harder-to-mine resources while new deposits are more difficult to find.

A deal would bring the two companies back together. Melbourne-based Newcrest was established in the 1960s as Newmont’s Australian arm. It later merged with BHP’s gold operations and established itself an independent business operating in Australia, Canada, and Papua New Guinea.

Newcrest is a low-cost producer with long-life reserves in a sector where few new large orebodies have been discovered. Newcrest has gold reserves of 61Moz, compared to Newmont’s 92.8Moz. The deal would give Newmont greater exposure to copper. Newcrest has copper reserves of 11Mt, surpassing Newmont’s 6.8Mt.

Newcrest is particularly appealing to Newmont, which has its own large operations in Australia. Newmont’s Boddington in Western Australia was the country’s top producer last year with output of 798koz. That’s ahead of Newcrest's Cadia operation (647.8koz) in NSW and another Newmont operation, Tanami, (484koz) in the Northern Territory. Newcrest also owns the Telfer mine in Western Australia, which produced 366koz in 2022.

The deal would expand Newmont’s growth asset pipeline and exploration portfolio. Apart from its Australian assets, it owns the Lihir mine in PNG (100%), the Brucejack (100%) and Red Chris mines (70%) in Canada and Fruta del Norte in Ecuador (32%). It also holds multiple advanced and exploration properties in various countries. Last year, Brucejack and Red Chris produced 250koz and 45koz on an attributable basis.

For fiscal 2023 (ending in June), Newcrest expects to produce 2.1-2.4Moz of gold and 135-155kt of copper. In 2021-22, Newcrest produced about 2Moz of gold at all-in sustaining cost of US$1,043/oz, and 121kt of copper, generating approximately US$2bn in EBITDA.



There has already been one takeover since Newmont’s offer for Newcrest. B2Gold has agreed to buy Canada’s Sabina Gold & Silver in an all-stock deal valued at US$824m. The acquisition increases B2Gold’s reserves by 66% to 9Moz and its measured and indicated resources by 52% to 18.5Moz. B2 Gold operates mines in Mali, the Philippines and Namibia.

Over the last few years, there has been several bouts of consolidation at the big end of the gold sector. In 2019, Barrick Gold merged with Randgold Resources in an US$18.3bn deal and Newmont snapped up GoldCorp for US$10bn in 2019. In 2021, Agnico-Eagle took over Kirkland Lake Gold for U$10.4bn to solidify its ranking as the third-biggest bullion producer. Agnico-Eagle and Pan American Silver are now in the process of buying and divvying up Yamana Gold in a US$4.8bn deal.

Neal Froneman, chief executive of Sibanye-Stillwater —one of the world’s largest precious metals producers, said he saw the need for further consolidation in a fragmented gold sector. “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 have swatted the suggestion.

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”.

Barrick has also largely rebuffed acquisition talk. Chief executive Mark Bristow said during the company’s 2022 annual results that it had “always believed that discovering ounces was better than buying them at a premium”.

That appeared to be a veiled dig at Newmont, which it tried to takeover in 2014 when it launched a hostile US$18bn all-stock offer. Five years later, the two combined their gold assets in Nevada to create Nevada Gold Mines. Barrick merged with Randgold that same year. That was its last major mining deal.

Mr Bristow conceded that the company would be interested in buying out Newmont’s share in the JV. “I’ve always said that the best assets that we haven’t got are the other parts of our joint ventures,” he said last month.

Barrick beat estimates for quarterly profit and announced a share buyback of up to US$1bn after record payouts to shareholders last year.


Well Timed Offer?

Newmont’s move comes after gold demand soared to its highest level in more than a decade last year to 4,741t, fuelled by a 55-year high in central bank purchases.

Last year, global monetary tightening, led by the US Federal Reserve, caused the US dollar to strengthen significantly and the gold price to slump. As yields on bonds rose last year, the appeal of non-yielding gold diminished. Gold is also denominated in US dollars and therefore becomes more expensive as the US dollar appreciates.

Between March last year, when the Fed began hiking US rates, and October, AME’s Europe spot gold price fell from an average of US$1,850/oz to US$1,665/oz. Then it started to rise and is now trading around the US$1,840/oz level. That rebound occurred as the US dollar, which had appreciated nearly 20% against the trade-weighted basket of America’s major trading partners, began to slide.

However, a recent hawkish turn by the Fed after the PCE index rose by 5.4% in January, following six months of relatively consistent cooling, could weigh on gold prices in the coming months. This month, Fed Chair Jerome Powell said the unexpected strength would probably require a stronger policy response from the Fed. That helped the US dollar index up again, rising to over 105. That’s up from a nine-month low of 100.08 on 1st February, but well below a 20-year high of 114.78 reached on 28th September.

We still expect Europe’s spot gold price to average US$1,850/oz in the March quarter of 2023, from US$1,730/oz in the previous quarter, on a robust start to the year.