Applying a new twist to industry consolidation,
“This is nothing less than the revitalization of the gold industry,” boasts Newmont chairman Ronald Cambre. “This three-way [merger] creates a company with a superior and balanced asset base; stable, new income streams; and the financial strength to do whatever is needed to deliver on building the wealth of its shareholders as the world’s best gold company.”
Under terms of the deal, Normandy shareholders receive 0.0385 of a Newmont share for every share tendered. They are also entitled to a cash bonus of A5 per share if more than 90% of the shares are tendered.
So far, Franco-Nevada has committed all of its 446 million Normandy shares, representing 19.9% of that company’s 2.23 billion shares outstanding. Likewise, Normandy chairman Robert Champion de Crespigny, who holds just under 3%, has offered his shares.
“This is what my colleagues and I have spent 16 years building Normandy for,” says de Crespigny. “We wanted to give our shareholders a hold in the world’s dominant gold company, with a North American market rating.”
The offer values Normandy at A$3.8 billion (including the cash bonus) and represents a premium of 21% over an earlier bid by AngloGold. For Franco-Nevada, this translates into an extra US$67 million over the US$247-million carrying value of its holdings; however, Franco-Nevada’s chairman Seymour Schulich emphasizes synergistic advantage over profits.
“First and foremost, let me say that all three companies firmly believe in gold,” he says. “This transaction will give the new company significant leverage to the gold price, as well as a very strong balance sheet.”
Both Schulich and President Pierre Lassonde have agreed to hold 70% of their personal holdings in the merged entity in escrow. The Franco-Newmont merger kicks in once Newmont has acquired 50.1% of Normandy and will follow an exchange ratio of 0.8-to-1.
“Its success will help us to substantially increase [Franco-Nevada’s] royalty portfolio and create new wealth out of merchant banking activities,” says Lassonde, who is earmarked for the role of president of the new company.
Post-merger, Newmont will have a market capitalization of some US$8 billion, rivalling that of the proposed merger of
The combined company would be the world’s largest gold producer, with annual output of 8.2 million ounces — about a million ounces more than
Cash costs are expected to average roughly US$175 per oz., putting the new company’s costs third-lowest among its peers.
Largest reserve base
Newmont will boast the largest reserve base, with 97 million ounces spread among 30 mines, and would have the largest property holding.
As for financial benefits, the mergers are expected to be accretive to earnings, free cash flow and net assets. The companies are betting on synergies providing US$70-80 million in annual after-tax savings in the first year alone.
“This is about portfolio diversification, and we expect that the new Newmont will be the clear choice for investors seeking upside to gold,” says Newmont President Wayne Murdy. “We’ll have huge trading liquidity and substantial cash flow from operations in excess of US$700 million, even at today’s gold price. This combination immediately makes Newmont one of the strongest and best-capitalized companies in the industry.”
Newmont also plans to adopt a no-hedging policy in an effort to shore up existing spot prices. Pro forma earnings jump by US$162 million for every US$25 rise in the price of gold, making Newmont the most leveraged gold producer in the industry.
“We plan to deliver on the existing conditions of Normandy’s hedge contracts and will seek to opportunistically unwind these positions,” says Murdy.
Forward sales
On June 30, Normandy had 6.4 million ounces sold forward at A$585 (US$303) per oz. and another 175,000 ounces at US$494 per oz. through to 2010. It also had put and call options on several million ounces over the same period.
After all is said and done, Newmont’s current shareholders will own 50% of the new Newmont; Franco-Nevada shareholders, 32%; and Normandy shareholders, 18%. A listing will be sought on the Australian Stock Exchange for the benefit of Normandy shareholders, and the exchangeable Newmont shares will inherit Franco-Nevada’s listing on the Toronto board.
Newmont will locate its head office in Denver and employ 12,500 people worldwide. It will have a board of 17 directors, including Cambre, Murdy, Schulich, Lassonde, and Champion de Crespigny.
A breakup fee of US$100 million is payable by Franco-Nevada and A$38.33 million by Normandy. The deal is expected to close by the middle of next year.
Be the first to comment on "Newmont jumps in"