Commodities & Metals

Merger Creates World's Largest Gold Company

Two of the world’s largest gold mining companies have agreed to merge. Denver-based Newmont Mining Corp. (NYSE: NEM) and Vancouver-based Goldcorp Inc. (NYSE: GG) have signed a definitive merger agreement under which Newmont will pay $10 billion in an essentially all-stock transaction to acquire Goldcorp. Shareholders of Goldcorp will receive 0.3280 shares of Newmont stock and $0.02 for each share of Goldcorp, representing a 17% premium to the 20-day volume-weighted share price of Goldcorp stock.

The merger follows a $6 billion deal completed on January 2 between Barrick Gold Corp. (NYSE: GOLD) and Randgold Resources. The merged company retained Barrick’s name but took Randgold’s ticker symbol from the Nasdaq to the New York Stock Exchange. That deal followed a failed effort to merge Newmont and Barrick that fizzled in 2015.

The Newmont-Goldcorp tie-up would create the world’s largest gold miner by production as well as the largest by market cap. There are no other huge mining firms left to merge, but smaller firms should continue to be looking to consolidate. Whether that will happen depends largely on the price of gold going forward.

In Monday’s announcement, the merged company is referred to as Newmont Goldcorp, but there is no statement that the new firm will adopt that name. Whatever its name, the company will continue to trade in New York under the NEM ticker. A listing in Toronto is also expected following the completion of the merger.

Newmont CEO Gary Goldberg said:

This combination will create the world’s leading gold business with the best assets, people, prospects and value-creation opportunities. We have a proven strategy and disciplined implementation plan to realize the full value of the combination, including an exceptional pool of talented mining professionals, stable and profitable gold production of six to seven million ounces over a decades-long time horizon, the sector’s largest gold Reserve and Resource base, and a leading project and exploration pipeline.

Goldcorp CEO David Garofalo added:

This combination creates the world’s premier gold company. In addition to the depth and quality of Newmont Goldcorp’s operations, projects, exploration properties and Reserves, the combined company’s assets will be centered in the world’s most favorable and prospective mining jurisdictions and gold districts.

Gold prices dipped below $1,300 an ounce in June on their way to a three-year low below $1,200 in August. Rising costs to extract the yellow metal from low-grade ore have forced gold miners to chase efficiencies and mergers to remain competitive. As part of its merger plan, Newmont said it plans to sell $1.0 billion to $1.5 billion in assets over the next two years.

The transaction is expected to close in the second quarter of this year, and Newmont’s Goldberg will be the CEO through the closing, after which he plans to retire and Tom Palmer, currently Newmont’s president and chief operating officer, will become CEO. Newmont shareholders will own about 65% of the merged company.

The announced agreement includes mutual non-solicitation covenants and rights to match superior proposals. Each firm is subject to a break-up fee amounting to 3.5% of the company’s value. In Newmont’s case, the fee is $350 million, while Goldcorp would be entitled to a fee of $650 million.

The transaction requires the approval of both companies’ shareholders, along with regulatory approval in the European Union, Canada, South Korea and Mexico.

Goldcorp stock traded up more than 11% early Monday to $10.57, in a 52-week range of $8.42 to $15.55.

Newmont’s shares traded down about 5%, at $33.10 in a 52-week range of $29.06 to $42.04.

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