When the threat of a financial crash looms, many investors turn to safer investment opportunities, and gold is often one of these. In an imminent market move set to make Newmont Mining Corp the largest producer of gold worldwide, the company has acquired Goldcorp for $10bn.
The Colorado-based Newmont will now be known as Newmont Goldcorp, and it will concentrate on finding new ways to access gold reserves. Easily available supplies of the key resource are continuing to dwindle.
Due to the changing market, the bigger players in the business are realizing that they need to use new tactics to keep meeting demand. Barrick Gold Corp’s purchase of Randgold Resources in September 2018 reflected this.
As a new addition to the market, Newmont Goldcorp will overtake Barrick as the leading producer of gold across the globe. This will give the merged company wider access to a great range of gold mines, including those in the Americas, Australia and Ghana.
With volatile markets in many traditional asset classes looking shaky over the last year and the mining industry having already suffered a serious dip in the middle of the decade, the leading gold companies will want to strike before any issues arise.
Newmont Goldcorp will follow a similar path to that of its rival Barrick by moving up to $1.5billion of other assets to fund the deal.
The merger will allow the company to revise its forecast, and it said that it will be able to deliver 6-7 million ounces of gold each year over the next decade and beyond. In comparison, Barrick’s forecast shows that it produced 4.5-5 million ounces of gold in 2018. This demonstrates why Newmont was so eager to complete its deal with Goldcorp.
Throughout 2019, current Newmont CEO Gary Goldberg will lead the new entity. He is due to retire at the end of the year, when current COO Tom Palmer will replace him.
When compared to what has been available on the New York Stock Exchange as late as last Friday, the deal offers an 18% premium on Newmont shares. The company has proposed a share and cash offer to acquire Goldcorp, offering 0.3280 of its share and $0.02 for every Goldcorp share. This translated to $11.46 per share based on Friday’s closing figures.
Vancouver-based Goldcorp’s shares listed on Toronto stock exchanges bounced up 9% on Monday as the news broke. Newmont’s shares dropped by around 7%, indicating that the value of a cash plus share offer may have reduced the impetus behind any share climb.
Newmont said that it expects the deal to be complete sometime during the second quarter, and it estimates that it will generate savings of $100m once the merger goes into effect.
As some of the more volatile assets become unreliable, commodities will likely come back into fashion. If newly merged rival companies such as Newmont and Goldcorp can improve supply, then demand may well occur. Either way, the new company seems prepared for the potential opportunity.