Corporate Action: Vote in Favor of Newmont’s Purchase of Newcrest via Scheme of Arrangement

We recommend shareholders of no-moat Newmont and no-moat Newcrest NCM vote in favor of Newmont’s proposed takeover of Newcrest at the companies’ meetings on Oct. 11 and Oct. 13, 2023, respectively. We think a superior offer is unlikely and it is in Newcrest shareholders’ interest to approve the deal, as we think Newmont is paying a fair price to acquire Newcrest. If the deal is approved, which we think is likely, Newcrest shareholders will receive 0.40 Newmont shares for each Newcrest share they own, along with a fully franked dividend of up to USD 1.10 (about AUD 1.72) per share. At current share prices and exchange rates, this totals roughly AUD 24.86 per Newcrest share, excluding up to an additional USD 0.47 (AUD 0.74) in franking credits for Australian taxpayers. Payment of the dividend is subject to the scheme becoming effective.

We retain our fair value estimates for Newmont and Newcrest of USD 54 and AUD 33 per share, respectively, in line with Newmont’s offer. Newmont shares currently trade at a 31% discount to fair value, which we think is primarily driven by its weak sales volumes in the first half of 2023. However, we think sales are likely to recover, helping lower unit cash costs and improve margins. The discount also likely reflects concerns over rising real interest rates, which increase the opportunity cost for investors to hold gold. With Newmont shares trading below our fair value estimate, this in turn is driving the 26% discount to fair value at which Newcrest shares currently trade.

If approved by both companies’ shareholders and all regulatory approvals are received, the transaction becomes effective in November 2023. Newcrest shareholders who hold their shares on the Australian Register will receive Newmont CHESS Depositary Interests, which will be listed on the Australian Securities Exchange. Newcrest shareholders who hold their shares on its Canadian Register will receive Newmont shares.