Newmont's $A29 billion all-paper takeover of Newcrest (ASX:NCM)
has proven to be a far more significant deal than initially anticipated. This acquisition not only adds over 2 million ounces of gold output annually and more than 140,000 tonnes of copper, along with silver and molybdenum, to Newmont's already leading global position but also strengthens its financial standing. The enhanced credit rating resulting from Newcrest's financial strength will lead to lower interest costs in the coming years.
Fitch now rates Newmont as A- (minus), placing it in the league of BHP (A stable) and Rio (also A stable). This elevated rating is assessed independently before incorporating Newcrest's assets, revenue, and earnings into the equation.
Fitch's rating is underpinned by two key assumptions: first, Newmont is modeled on a standalone basis, and second, the projected gold prices are expected to decline from $US1,900/oz. in 2023 to $US1,800/oz. in 2024, $US1,600/oz. in 2025, and $US1,500/oz. thereafter. Despite a 21% drop, the gold price remains above Newmont's current price sensitivity level of $US1,400 an ounce.
While Fitch's rating did not specify copper price assumptions, they will become increasingly crucial as Newcrest's tonnage is integrated into Newmont's production.
Newmont's improved rating surpasses that of Glencore's BBB, and the additional copper tonnages from Newcrest, coupled with increased gold output and cost-cutting capabilities, should help sustain this higher rating.
Fitch's rating for Newmont also outshines those from S&P Global and Moody's, which are BBB and Baa1, respectively.
This significant upgrade coincides with the final phase of the world's largest gold takeover, with shareholder meetings scheduled in the US and Melbourne this week. Fitch's analysis makes it clear why Newcrest's acquisition enhances Newmont's creditworthiness, citing the unparalleled scale and potential benefits of optimising the project pipeline and portfolio.
While the potential rating benefits of the acquisition were not highlighted during the offer, Newmont stands to gain an unexpected long-term advantage, offsetting the recent 10% slide in gold prices from just over $US2,000 an ounce in April to $US1,857 an ounce on Friday (on Comex in New York).