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In the largest buyout bid disclosed this year, two of the top gold miners in the world are in talks to become a global production behemoth.
An all-share offer for its Australian rival Newcrest has been made by US-listed Newmont, the world's largest gold miner by output, valued at about A$24 billion ($17 billion).
The action might spark a bidding battle for Newcrest, the biggest gold mining company in Australia. Competitors like Canada's Barrick Gold and Agnico Eagle, according to analysts, are also attempting to consolidate the market.
Following the news, shares of Newcrest increased 10% to A$24.74, marking their highest level since May.
According to data from Dealogic, Newmont's A$24 billion offer for Newcrest would easily surpass the $7.5 billion purchase of water treatment company Evoqua by technology group Xylem revealed last month as the highest M&A deal reported thus far this year.
The implied premium in Newmont's offer over Newcrest's most recent closing share price is 21%.
The purchase is subject to clearance from the board of Newcrest and regulatory authorities, according to Tom Palmer, the Australian chief executive of Denver-based Newmont.
"We believe a combination of Newmont and Newcrest presents a powerful value proposition to our respective shareholders, workforce and the communities in which we operate," he said.
The merger would bring the two businesses back together after almost 25 years apart. In the 1960s, Newmont Australia was founded in Melbourne. After merging with BHP's historical gold assets in 1990, Newcrest was split out.
Four of Australia's top five gold mines would be under one company's control if the historically linked corporations combined, which would require Australian government approval.
The Australian Financial Review broke the story of the negotiations first.
More businesses are considering mergers and acquisitions to increase their scale as a result of growing expenses in Australia's mining industry, output problems for gold, and price instability caused by dramatically higher interest rates.
Assets in stable countries like Australia and Canada have attracted attention. OZ Minerals, a nickel, copper, and gold miner in South Australia, is almost ready to be purchased by BHP for $6.4 billion, while Yamana Gold, a gold miner in Canada, is being broken up after Agnico Eagle and Pan American Silver spent $4.8 billion to buy it.
The largest firms in the gold industry are focusing more on Newcrest. It owns mines in Australia, Canada, and Papua New Guinea, and both Newmont and Barrick have been keeping an eye on it lately. After its stock's value almost fell in half between April and September of last year, it has once again become a target. Sandeep Biswas, who had been the company's longtime CEO, retired in December, but a permanent successor has not yet been named by the corporation.
Although Newcrest claimed to have previously rejected one offer as being too low, it did not completely rule out talking to its major competitor, who on Sunday made a higher indicative offer.
The revised proposal would also include a plan to float Newmont on the Australian Stock Exchange and would provide 0.38 Newmont shares for every Newcrest share. Shareholders of Newmont would possess 70% of the combined corporation, compared to Newcrest's 30%.
According to Simon Mawhinney, chief investment officer of Allan Gray, the largest stakeholder in Newcrest, he would not support a takeover by Newmont under the conditions outlined.
"Newcrest is very cheap. There is dilution risk", he noted. He also said that the Australian company was well capitalized and that its long-life gold reserves should be quite valuable, saying, "The merger ratio is too cute by half."
As Barrick said to be interested in a purchase in 2018, Mitch Ryan, an analyst with Jefferies, said the approach may shake out other bids. "While no formal indication has been given, further interest from other suitors is possible " he added
The new offer would be taken into consideration, according to Newcrest, which is being advised by JPMorgan and Gresham Advisory Partners. Lazard, Centerview Partners, and Bank of America are advising Newmont.
By fLEXI tEAM