Newmont acquires Goldcorp, forms world’s largest gold miner

Newmont shareholders are getting a good deal at the expense of Goldcorp shareholders, says Morningstar’s Kristoffer Inton

Kristoffer Inton 16 January, 2019 | 6:00PM

On Jan. 14, Newmont Mining Corp (NEM) announced the acquisition of fellow senior producer Goldcorp (G), which would form the largest single gold miner in the world. Combined 2017 production would have totaled 7.9 million ounces, excluding any divestments. Under the announced terms of the deal, Goldcorp shareholders will receive 0.3280 Newmont shares and US$0.02 in cash for each Goldcorp share they own, which represents a 17% premium on each company’s 20-day volume-weighted average price before the announcement.

Strategically, the deal makes some sense. The pro forma company will maintain an Americas-focused footprint, which helps maintain an arguably lower geopolitical risk. In addition, Newmont has shown some recent operational successes with acquired assets, so it may be able to add better performance to the struggling Goldcorp.

We view the deal as favorable for Newmont shareholders and unfavorable for Goldcorp shareholders. As such, we’re increasing Newmont’s fair value estimate to US$36 per share from US$34. We’re decreasing Goldcorp’s fair value estimates to US$11 per share and $14.50 per share, down from $16 and $21. Because we believe the transaction will be consummated as announced, we now base Goldcorp’s fair value estimates on the announced exchange rate and Newmont’s fair value estimate. We maintain our no-moat ratings for both companies.

Goldcorp has struggled in recent years with operational challenges, leading to share price underperformance relative to its gold mining peers. Nevertheless, we still see the offer price as far below our stand-alone fair value estimate of $16 per share as well as the consensus median target price of $13 per share. As a result, we think that Newmont shareholders are getting a good deal at the expense of Goldcorp shareholders.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Newmont Goldcorp Corp39.30 USD2.10

About Author

Kristoffer Inton

Kristoffer Inton  Kristoffer Inton is an equity analyst for Morningstar, covering gold, coal and cement companies. Before joining Morningstar in 2013, he was an investment banking associate for Guggenheim Securities in New York. He holds a bachelor’s degree in finance with high honours from the University of Illinois.