Newmont touts Goldcorp synergies as clock ticks on Newcrest takeover bid

As an exclusive four-week due diligence period for Newmont (NYSE: NEM; TSX: NGT) to assess the Newcrest Mining (TSX: NCM; ASX: NCM) data room draws to a close, Newmont says its April 2019 merger with Goldcorp has released more than US$1 billion in synergies six months earlier than planned.

In an overnight blog post, U.S.-based Newmont, which had in February and early April launched successive non-binding bids for Australia’s Newcrest to create the world’s largest gold producer, said its ‘Full Potential Program’ had driven about three-quarters of the value it tapped from bringing the Goldcorp assets into its fold.

The operational improvement initiative focuses on achieving correct mining fundamentals across the operating asset base and intends to do the same should the Newcrest takeover succeed.

Underpinned by the improvement program, Newmont enhanced the average payload for haul trucks at its Peñasquito mine in Mexico by 17 tonnes per load, translating to 12 million additional tonnes of material moved yearly with little incremental cost. Combined with other improvements, the operation improved mined tonnes by 20% without requiring new equipment.

Newmont also touts a debottlenecked Peñasquito processing circuit, which delivered a 7% rise in throughput compared with 2020 figures, translating to more than US$300 million in free cash flow improvement yearly.

Newmont implemented a tele-remote system in Canada for underground loading and hauling at the former Goldcorp-owned Porcupine, Musselwhite and Éléonore mines. This technology removed underground safety risks for operators while enabling more efficient shift changes, thereby improving underground working times by an average of five hours per day.

Newmont took its learnings from the successful tele-remote system deployments in Canada and replicated it at the Cerro Negro operation in Argentina, making it the first mine in the country to use this technology for improved safety and productivity performance.

On Apr. 27, Newmont reported March-quarter production of 1.3 million oz. gold, down from 1.3 million oz. a year earlier. On an adjusted basis, the company posted a net income of US40¢ per share, down from US69¢ per share a year earlier. Its headline earnings beat analysts’ average estimate of US33¢ per share.

The performance resulted in the Newmont board declaring another industry-leading dividend of US40¢ per share. Combined with its base dividend of US$1 per share, it takes the annualized dividend payout range to US$1.40-US$1.80 per share, subject to quarterly board approvals.

Newmont had on Apr. 10 announced an improved “best and final” bid for Newcrest valued at US$21.2 billion, up from the prior implied value of US$17 billion, in a deal analysts expect might succeed this time.

Newmont is now offering Newcrest shareholders 0.4 shares per Newcrest share held, up from the previous paper offer of 0.38 shares for each. With the sweetened offer, the Newcrest board has also been given the right to fund and pay its shareholders a special dividend of US$1.10 per Newcrest share.

The new bid represents a 46.4% premium to Newcrest’s share price on Feb. 3, before the original proposal was announced and summarily rejected.

The proposal appears to be supported by Newcrest as well. Its board has resolved to allow Newmont access to its data room to conduct due diligence in anticipation of receiving a binding proposal. Should all go to plan, the merger could close by early 2024.

The due diligence is expected to be completed within about four weeks (from Apr. 10).

A Newmont-Newcrest combination would solidify Newmont’s position as the world’s largest gold producer, with pro forma attributable gold production of over 8 million oz. gold and almost double that of Barrick Gold (TSX: ABX; NYSE: GOLD), the second largest producer.