Gold merger held up by price wrangle: Analysts question £14bn deal between US and Australian mining rivals

Two of the world’s biggest gold miners are planning a multi- billion dollar merger.

The deal between Colorado-based Newmont Corp and Australian rival Newcrest is shaping up to be the largest corporate deal so far this year. 

But the tie-up has sparked controversy with some analysts and investors questioning the price tag.

Mining merger: Pure gold ore found in an Australian mine. Colorado-based Newmont Corp and Australian rival Newcrest are discussing an all-share deal that values the latter at around £14bn

Mining merger: Pure gold ore found in an Australian mine. Colorado-based Newmont Corp and Australian rival Newcrest are discussing an all-share deal that values the latter at around £14bn

Newmont, the world’s largest gold miner by output, and Newcrest are discussing an all-share deal that values the latter at around £14billion.

The offer for Newcrest investors is 0.38 Newmont shares for each share they hold in the company, implying a 21 per cent premium to its stock price on the day before the deal was announced.

It would be the biggest merger deal so far this year and reunite the two businesses.

Melbourne-based Newcrest was set up in the 1960s as Newmont’s Australian business, before being split off in 1990. 

But the tie-up would require approval from Australian regulators as it would put four of the country’s five largest gold mines under the control of a single company.

The mining sector faces rising costs, which has pushed many companies to consider mergers to boost their capabilities.

But some of Newcrest’s largest shareholders have questioned the value of the deal as rising interest rates around the world are expected to boost gold prices, meaning the firm is at risk of being taken over on the cheap. 

Simon Mawhinney, chief investment officer at investment manager Allan Gray, Newcrest’s largest shareholder, said: ‘A good litmus test for a reasonably priced deal is one where both seller and buyer feel somewhat aggrieved by selling out too low or by paying too much.

‘It’s not clear to me that this kind of symmetry exists with these deal terms.’

Meanwhile, Morningstar analyst Jon Mills said that if a deal was to be done, it would probably need to be ‘at a higher price’ than the £14billion on the table from Newmont.

He added that ‘other major gold miners’ could be interested in Newcrest, meaning it could become the centre of a bidding war as Canada-based giants Barrick Gold and Agnico Eagle have also been looking to snap up competitors.

There is also speculation that Newmont’s swoop on Newcrest has been timed to exploit a leadership vacuum at the top of the business after its chief executive, Sandeep Biswas, stepped down in December.

No comments have so far been submitted. Why not be the first to send us your thoughts, or debate this issue live on our message boards.

We are no longer accepting comments on this article.