The World’s Biggest Gold Miner Bets Big on Copper
Newmont’s $17.5 billion recommended takeover of Australia’s Newcrest boosts its exposure to key metal in energy transition
SYDNEY—Newmont NEM 0.13%increase; green up pointing triangle said it has agreed to acquire Australia’s Newcrest Mining NCMGY 0.37%increase; green up pointing triangle for $17.5 billion, concluding weeks of talks over a sweetened offer by the U.S. company that wants to complete the largest-ever M&A deal in the gold-mining industry.
Newmont’s pursuit of Newcrest illustrates how gold producers are seeking to make deals as the industry is struggling to make large discoveries of the precious metal. It also extends a battle for control among miners for commodities essential for making electric vehicles and renewable-energy infrastructure, as Newcrest’s gold mines also produce significant amounts of copper.
The global mining sector is experiencing a wave of deal making not seen for years, contrasting with a lull in overall global M&A activity. While gold producers, including Newmont, had been active as they sought mines that could replace aging operations and lower costs, the industry’s hunger for deals has broadened out to encompass many of the world’s biggest mining companies, such as BHP and Glencore GLNCY 1.22%increase; green up pointing triangle.
The energy transition and government policies such as the Inflation Reduction Act in the U.S. are driving miners’ desire for deals as the run-up in commodity prices that followed Russia’s invasion of Ukraine early in 2022 has left companies flush with cash. Gold prices are hovering close to their record high, up more than 10%, as investors bet that inflation will remain elevated despite central bank action to bring it under control.
Copper is at the heart of the latest spending spree by miners, amid expectations that demand for the metal will rise as the world decarbonizes. Electric vehicles and wind farms use copper in much greater quantities than gasoline-powered cars and coal-fired power stations.
Tom Palmer, Newmont’s president and chief executive, said the opportunity to produce more copper had been a key attraction of a deal to acquire Newcrest along with the size of its resource base that can sustain mining for decades. The location of Newcrest’s mines in low-risk jurisdictions such as Canada and Australia also bolstered the appeal of a takeover.
“We will still be clearly known as a gold-mining company,” Mr. Palmer said in an interview. “But we’ll have a good exposure to copper and a growing exposure to copper, and certainly that rationale is landing with everyone that we engage with.”
Some mining companies and analysts predict the industry will struggle to raise production of copper to keep pace with demand, amid a lack of discoveries and permitting challenges. Unlike battery materials such as nickel and cobalt, copper is difficult to substitute in most applications.
Wood Mackenzie, a U.K.-based consulting firm, forecasts a deepening shortfall in copper from the middle of this decade, which could send prices of the metal higher amid a scramble for scarce supply.
To meet Paris climate targets, more than $23 billion a year will need to be spent on new copper projects over the next 30 years, 64% higher than the average annual spend over the past three decades, Wood Mackenzie said.
Already this year, BHP has completed its biggest deal in a decade by acquiring Australian copper-and-gold miner OZ Minerals. Copper is also part of the appeal for Glencore’s roughly $23 billion merger proposal for Teck Resources. Teck has so far resisted Glencore’s advances.
Newmont estimates that roughly 30% of its global reserves would be copper once it has completed the takeover of Newcrest. Copper is often found in areas with large deposits of gold.
The agreed deal for Newcrest involves Newmont exchanging 0.400 of its own shares for each Newcrest share. In addition, the U.S. company will allow Newcrest to pay a special dividend of up to $1.10 a share around the time that the deal completes. Those terms are in line with a revised offer pitched by Newmont roughly a month ago.
Mr. Palmer said the company could look to sell some assets in future, but didn’t specify where in the world those operations might be. He described Newcrest’s Lihir operation in Papua New Guinea, as “one of the great gold mines in the world” that would help to balance Newmont’s asset portfolio. Some analysts had speculated that Newmont could look to exit Papua New Guinea after completing the takeover of Newcrest, given the country’s history of political instability.
Newcrest, confirming the deal in a separate statement on Monday, said it implies a price for its own stock of 29.27 Australian dollars, equivalent to $19.53. That represents a 30.4% premium to where its shares were trading in early February prior to Newmont’s interest becoming known. Still, that is lower than the implied value of A$32.87 a Newcrest share in early April and largely reflects a fall in Newmont’s stock price on the New York Stock Exchange since then.