In a Jan. 14, 2019 research note, CIBC analyst Anita Soni reported that Newmont Mining Corp. (NEM:NYSE) entered into a definitive agreement to acquire Goldcorp Inc. (G:TSX; GG:NYSE) for $10 billion. Closing of the deal is expected in Q2/19.
Soni pointed out that on one hand, the acquisition will allow Newmont to maintain its status as the world's leading gold producer, maintaining a production rate of an estimated 6–7 million ounces a year.
However, the analyst highlighted, uncertainty about long-term production and costs related to Goldcorp's assets will likely create an overhang on the stock. As such, CIBC downgraded its rating on Newmont to Neutral from Outperformer and will maintain that rating until the miner outlines its strategic plans. The bank also lowered its target price on the Colorado-headquartered miner to $41 per share from $48 "based on lower target multiples." In comparison, Newmont's stock is trading today at about $30.86 per share.
Soni relayed the terms of the Newmont-Goldcorp deal. Newmont will acquire each Goldcorp share for 0.3280 of a Newmont share plus cash of $0.02 per share. This reflects a 17% premium based on the 20-day volume-weighted average price. "On a preliminary basis, we view the deal as dilutive," Soni noted, based on estimated values that exclude projected "synergies, asset sales or downward production revisions."
The combined entity will be named Newmont Goldcorp and will be listed on the New York and Toronto stock exchanges. Newmont shareholders will own about 65% of the merged entity, and Goldcorp shareholders will own about 35%.
Looking forward, Soni indicated, the merged entity Newmont Goldcorp intends to optimize production levels, maintain a solid balance sheet and concentrate on shareholder returns. "Newmont noted that it is targeting investments in greater than 15% return projects and is targeting $1–1.5 billion of divestitures over the next two years while looking to deliver up to $100 million in annual pretax synergies," she added.
Soni included additional details about the combined entity. Newmont's CEO Gary Goldberg will delay his retirement and stay with the corporation through 2019, during which time Troy Palmer, Newmont's current president and chief operating officer, will transition into that role.
Newmont Goldcorp will be headquartered at Newmont's current Colorado base. Goldcorp's Vancouver, British Columbia, headquarters will become the new company's North America regional office for Canada and the U.S.
As for the board of the merged entity, Newmont directors will make up two-thirds of it, and Goldcorp directors will comprise the other third. Noreen Doyle, currently Newmont's chairperson, will become the chairperson of Newmont Goldcorp's board. Goldcorp's chairperson Ian Telfer will become the new company board's deputy chairperson.
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Disclosures from CIBC, Newmont Mining Corp., January 14, 2019
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Important Disclosure Footnotes for Newmont Mining Corporation (NEM)
CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Newmont Mining Corporation in the next 3 months.
Goldcorp Inc.: CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1% or more of a class of equity securities issued by this company.
