There’s an enormous chance for Australian miners like Evolution and Northern Star Resources – not to mention that perennial mine hunter Mineral Resources – to get global scale by positioning themselves to buy mines Newmont wants to flick after it takes control of Newcrest
(ASX:NCM).
Newcrest’s Lihir and Cadia mines are the only ones ranked as “core” by buyer Newmont, raising uncertainty over the future of its other mines.
Lihir is a gold mine, while Cadia is a gold copper operation with considerable scope for expansion of the latter mineral in coming years.
Newcrest’s other mines, Red Chris and Brucejack in Canada, Goswong (a proposed mine in PNG), Telfer and the associated Havieron prospect, and the share of returns from the Fruta del Norte mine in Ecuador.
Newmont Mining chief Tom Palmer reckons he can create value at Newcrest mines like Lihir by getting the “basics” right, after successfully convincing the board of Australia’s biggest gold miner to accept a $A26.2 billion takeover offer.
This limiting the Newcrest mines to a core of two raises the question if the Newmont CEO wants to waste money by buying Newcrest just for two mines – especially when the rich Brucejack mine in British Columbia, bought last year, seems to have an enormous upside.
Cadia in central Western NSW has the potential to be a major operation given the continuing discoveries by other explorers in the area, especially Alkane and Magmatic Resources.
And Palmer is destined to join the queue of companies that Lihir has disappointed because of a combination of difficult geology and the politics of Papua New Guinea.
Newmont received unanimous support from Newcrest directors on Monday five weeks after Newmont improved a scrip offer that values Newcrest shares at $29.29; almost double price it was before the bid was launched in February.
Production from Lihir has waxed and waned since Newcrest paid $A9.5 billion in shares and cash in 2010 for Lihir Gold and its assets, mostly the Lihir mine and then other mines were sold off.
Newmont has the rich Boddington gold-copper mine in WA and the Tanami mine in the Northern Territory which is being expanded (and its life extended by 20 years) in a $US1 billion plus spend that won’t see any real results until 2025-26.
Palmer wants more exposure to copper – something he has been slow off the mark to grasp in the current renewables push.
Newmont gets copper from some of its mines but Newcrest will lift copper output by more than 140,000 tonnes a year. Newmont only produces around 39,000 tonnes of metal a year (around 84 million pounds).
Palmer made it clear in Monday’s announcement that he sees the deal as being driven by more copper, cost cutting and boosting cash flow – which strongly suggests Newcrest mines will go instead of some of Newmont’s own mines in South America are marginal operations or prospects and in politically unstable countries.
“It creates an industry-leading portfolio with a multi-decade gold and copper production profile in the world’s most favourable mining jurisdictions,” Palmer said in the statement on Monday.
“Leveraging our experience from the acquisition of Goldcorp four years ago, we are positioned to deliver an estimated $500 million in annual synergies and an estimated $2 billion in incremental cash flow from portfolio optimisation opportunities – “”portfolio optimisation opportunities” is business speak for asset sales.
Northern Star has experience buying Newmont’s discards – it bought half of the Big Pit near Kalgoorlie while Saracen bought the other half – Northern Star then bought Saracen to get control of the operation.
Northern Star and Evolution have single mines in North America and the red Chris and the Bruce Jack mines could be of interest. Barrick, the second biggest global miner has made it clear it will not grow via takeover but hasn’t ruled buying or developing new mines and there could be three at Newcrest to choose from.
(And besides Newcrest itself is a cast off from Newmont. In 1966, when Newmont Mining established an Australian subsidiary, Newmont Australia Ltd. In 1990, Newmont Australia Ltd acquired Australmin Holdings Ltd, and subsequently merged with BHP Gold Ltd in late 1990, changing its name to Newcrest Mining Ltd.)
Newcrest shares rose 1.5% to $28.68 yesterday.
