It is, so far, the largest takeover bid of this year: 16.9 billion dollars (15.8 billion euros) is on the table. The American miner Newmont, the largest gold producer in the world, wants to become even bigger by incorporating its Australian competitor Newcrest.
The American firm is determined to bring in the Australians: Newmont already made a failed attempt to buy Newcrest in January. What makes Newcrest attractive: gold mines with names such as Lihir and Wafi-Golpu (Papua New Guinea), Telfer (Australia) and Red Chris (Canada). The mines are all located in politically stable areas, unlike large gold mines of other companies in Russia, Mali and Congo, for example.
Newmont’s chief executive, Australian-born Tom Palmer, said in June last year that “consolidation” in the industry was necessary given the rising cost of mining. Environmental requirements are being tightened up, the sites of gold are becoming less accessible, according to Palmer according to the Australian Financial Review (AFR). Other miners see it that way too. The Canadian Barrick’s, the second largest gold producer after Newmont, took over the British Randgold in 2018.
It is “a lot easier” to buy gold mines that are already functioning than to find and develop new mines, said Paul Harris of asset manager Harris Douglas Asset Management on Canadian business channel BNN Bloomberg. With a takeover of Newcrest, Newmont will get a few long-term projects with a lifespan of twenty to thirty years, according to Harris.
History reversed
The deal isn’t done yet. Shareholders grumble about what they consider to be too low an offer. And Australian regulators must give their approval. If the deal goes through, history would, in a sense, be reversed. Newcrest was founded in 1966 as an Australian subsidiary of Newmont (then known as Newmont Holdings). In 1990 the company became independent and got its current name.
Mergers and acquisitions in the gold mining sector have a “cyclical” character, asset manager Harris told BNN Bloomberg. If a higher gold price is expected, takeover activity will increase.
A higher gold price is expected in the near future, says Harris, because the value of the US dollar is under pressure. The US dollar and gold are both ‘safe haven’ investments: investors move their money there when the world is unstable, as it is now. If the US dollar depreciates, gold becomes relatively more attractive and therefore more expensive. The US currency may fall in value if the US central bank, the Federal Reserve, believes that inflation is under control.
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Gold in demand since corona
The gold price was on Tuesday at $ 1,875 per troy ounce (31.1 grams) – historically that is high. Gold has been in demand since the start of the corona pandemic. The Russian invasion of Ukraine has kept the price high. Last year, central banks also bought a lot of gold. Gold purchases hit a 55-year high in 2022, reported last week the World Gold Council, the organization that monitors the gold market worldwide. This may have to do with the sanctions that Western countries issued against the Russian central bank, economists at the International Monetary Fund (IMF) recently suggested. The Russian central bank’s Western currency assets abroad were frozen. With gold (provided it is stored in your own country) that is not easy. So the lesson for central banks was: buy a lot of gold for your reserves.
Given the continued instability in the world, the upward pressure on the gold price may continue this year as well. A good prospect for Newmont, which only hopes to be able to produce more gold in the future. The planned takeover of Newcrest is mainly, but not only, about gold. Copper is often a by-product of gold mining, including at the Newcrest mines, the AFR writes. Newmont boss Palmer recently showed interest in expanding copper activities, because this metal is in high demand in the global energy transition.
A version of this article also appeared in the February 8, 2023 newspaper