Spin-off may transform local gold sector

ANALYSTS are suggesting a rumoured spin-off of Barrick Gold and Newmont Mining's Australian assets may create a peer for local market leader Newcrest Mining.

Kristie Batten
Spin-off may transform local gold sector

The Wall Street Journal reported over the Easter break that merger talks between Barrick, the world’s largest gold miner by market capitalisation and production, and Newmont, the world’s third-largest producer, had broken down.

It was reported by Bloomberg that Barrick would offer Newmont a 13% premium.

Barrick, with a market cap of nearly $US21 billion ($A22.6 billion), produced 7.1 million ounces of gold in 2013, while Newmont, worth about $12.9 billion, produced 5.1Moz.

The major attraction was reported to be synergies and cost savings, particularly in Nevada where the two operate.

JP Morgan said while previously getting too big was seen as a negative, it expected that investors would welcome a tie-up.

“Today, size could be strength,” JP analyst John Bridges said in a research report.

But the sticking point was said to be a spin-off of the two companies’ Asia-Pacific assets.

It was unclear which assets were to be demerged or what sparked the disagreement, but Macquarie speculated that the local spin-off could own eight operations.

The largest would be Newmont’s Boddington mine in Western Australian, followed by Kalgoorlie’s Super Pit, which is already a joint venture between the two.

The other Australian mines are Newmont’s Tanami and Jundee operations and Barrick’s Cowal property.

Barrick was Australia’s largest producer until around six months ago, when it sold off six Australian mines to Gold Fields and Northern Star Resources.

Macquarie expects that a spin-off would also include regional assets Porgera in Papua New Guinea, Waihi in New Zealand and Batu Hijau.

In 2013, the eight operations produced 2.8Moz gold at all-in sustaining costs of $987 an ounce.

By comparison, Newcrest owns six operations, all except Bonikro being in the Asia-Pacific region, with expected 2014 financial year production of 2.3Moz gold.

Macquarie suggested the proposed Barrick-Newmont deal could create a potential peer for Newcrest, though it remains unclear where the spin-off would be listed.

“Since NCM acquired Lihir Gold in 2010, the company has lacked a meaningful peer on the ASX,” Macquarie noted.

Newcrest has a market cap of around $A8 billion, with its closest rival being the much smaller Regis Resources with a market cap of $1.2 billion.

Based on the eight operations, the Barrick-Newmont spin-off would have resources of 55.3Moz gold and reserves of 92.9Moz, translating to mine lives of 11 years on reserves and 19 years on resources.

“Newcrest has a much larger reserve and resource base for its operating assets of 67.7Moz and 128.9Moz respectively, which translates to a mine life of 28 years on reserves and 53 years on resources based on 1HFY14 production rates,” Macquarie said.

“In addition to the operating mines, Newcrest also has 9.8Moz of gold and 6.2 million tonnes of copper reserves and 20.8Moz of gold and 10.8Mt of copper resources at its non-operating assets (Wafi-Golpu, Namosi and Marsden).”

In an interesting twist, Newcrest was originally created out of Newmont.

Newmont Australia acquired Australmin Holdings and merged with BHP Gold in 1990 to create the company.

It is unclear if Barrick and Newmont will restart talks, but both may shed light in their respective March quarter results calls.

Newmont’s is tomorrow, while Barrick’s is next week.

But for now, Macquarie expects no major impact on Newcrest.

“The potential creation of a comparable peer for Newcrest would be intriguing however given the uncertainty over the Barrick/Newmont merger going ahead, the new vehicle being created and the likely valuation and listing location, we do not expect these reports to have a material impact on Newcrest in the short-term,” Macquarie said.

Newcrest shares rose 2.5% to $10.37 this morning.


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