In a Jan. 14, 2019 research note, CIBC analyst Anita Soni reported that Newmont Mining Corp. (NEM:NYSE) entered into a definitive agreement to acquire Goldcorp Inc. (G:TSX; GG:NYSE) for $10 billion. Closing of the deal is expected in Q2/19.
Soni pointed out that on one hand, the acquisition will allow Newmont to maintain its status as the world's leading gold producer, maintaining a production rate of an estimated 6–7 million ounces a year.
However, the analyst highlighted, uncertainty about long-term production and costs related to Goldcorp's assets will likely create an overhang on the stock. As such, CIBC downgraded its rating on Newmont to Neutral from Outperformer and will maintain that rating until the miner outlines its strategic plans. The bank also lowered its target price on the Colorado-headquartered miner to $41 per share from $48 "based on lower target multiples." In comparison, Newmont's stock is trading today at about $30.86 per share.
Soni relayed the terms of the Newmont-Goldcorp deal. Newmont will acquire each Goldcorp share for 0.3280 of a Newmont share plus cash of $0.02 per share. This reflects a 17% premium based on the 20-day volume-weighted average price. "On a preliminary basis, we view the deal as dilutive," Soni noted, based on estimated values that exclude projected "synergies, asset sales or downward production revisions."
The combined entity will be named Newmont Goldcorp and will be listed on the New York and Toronto stock exchanges. Newmont shareholders will own about 65% of the merged entity, and Goldcorp shareholders will own about 35%.
Looking forward, Soni indicated, the merged entity Newmont Goldcorp intends to optimize production levels, maintain a solid balance sheet and concentrate on shareholder returns. "Newmont noted that it is targeting investments in greater than 15% return projects and is targeting $1–1.5 billion of divestitures over the next two years while looking to deliver up to $100 million in annual pretax synergies," she added.
Soni included additional details about the combined entity. Newmont's CEO Gary Goldberg will delay his retirement and stay with the corporation through 2019, during which time Troy Palmer, Newmont's current president and chief operating officer, will transition into that role.
Newmont Goldcorp will be headquartered at Newmont's current Colorado base. Goldcorp's Vancouver, British Columbia, headquarters will become the new company's North America regional office for Canada and the U.S.
As for the board of the merged entity, Newmont directors will make up two-thirds of it, and Goldcorp directors will comprise the other third. Noreen Doyle, currently Newmont's chairperson, will become the chairperson of Newmont Goldcorp's board. Goldcorp's chairperson Ian Telfer will become the new company board's deputy chairperson.[NLINSERT]
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Goldcorp, a company mentioned in this article.
Disclosures from CIBC, Newmont Mining Corp., January 14, 2019
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.
Analysts employed outside the U.S. are not registered as research analysts with FINRA. These analysts may not be associated persons of CIBC World Markets Corp. and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Potential Conflicts of Interest:
Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets Corp./Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers.
In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets Corp./Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon.
Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.
Important Disclosure Footnotes for Newmont Mining Corporation (NEM)
CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Newmont Mining Corporation in the next 3 months.
Goldcorp Inc.: CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1% or more of a class of equity securities issued by this company.