Goldcorp’s Eleonore Mine in northern Quebec. Source: Goldcorp Inc.
Consolidation in the global gold mining sector continued Monday January 14 with news that Goldcorp Inc. [G-TSX; GG-NYSE] and Newmont Mining Corp. [NEM-NYSE] have agreed to merge in an all-stock deal worth $10 billion.
The combined company, called Newmont Goldcorp, will have operations in the Americas, Australia and Ghana, producing between 6.0 million and 7.0 million ounces of gold annually.
That would make the largest gold producer globally by some distance.
News of the deal comes after Barrick Gold Corp. [ABX-TSX, NYSE] recently agreed to merge with Randgold Resources Ltd. [GOLD-NASDAQ, LSE]. Barrick is expecting to produce 4.5 million to 5 million ounces of gold in 2018, potentially rising to 6 million ounces this year.
The combination of Newmont and Goldcorp will create the world’s leading gold company, with a portfolio of assets to support sustainable, profitable gold production over a long-term horizon, the companies said in a press release, Monday.
Under the terms of the agreement, Newmont will acquire each Goldcorp share for 0.3280 of a Newmont share and $0.02 for each Goldcorp share, which represents a 17% premium based on the companies’ volume weighted average share prices. It means Newmont is paying around $11.50 for Goldcorp.
Scotiabank analyst Tanya Jakusconek expressed the opinion Monday that the chances of another bidder emerging are low.
Newmont and Goldcorp shareholders will own approximately 65% and 35% of the combined entity respectively.
“This combination creates the world’s premier gold company,” said Goldcorp President and CEO David Garofalo.
By combining their operations, the duo are seeking steady profitable gold production and targeting up 7.0 million ounces over a decades long time horizon.
The merged entity is also aiming for a sustainable annual dividend of $0.56 per share, the highest among senior gold producers.
The merged company will also seek to shed up to $1.5 billion worth of assets over the next two years, enabling it to function with a more reasonable size and stable production level. It will be looking to achieve up to $100 million in annual pre-tax synergies.
Goldcorp shares advanced 7.47% or $0.96 on the news to $13.82 on volume of 6.4 million. The 52-week range is $19.32 and $11.
Newmont was off 8.43% or US$2.94 to US$31.94 on volume of 17 million.
Newmont CEO Gary Goldberg will lead the combined company, while Newmont Chief Operating Officer Tom Palmer is expected to hang onto that role.
The companies said Goldcorp’s Vancouver headquarters will become a regional office and a base for some of the combined entity’s global functions, including oversight of Indigenous community relations.
Newmont is merging with Goldcorp at the tail end of what has been a steep decline in the value of Goldcorp’s shares from $54 in 2011.
Back in October, 2018, Goldcorp lost almost one-fifth of its market value in a single day after reporting weaker than expected production numbers, rising costs and declining reserves.
The transaction is expected to close in the second quarter of 2019.