America’s Newmont’s $17 billion all-stock offer for Australia’s Newcrest is a sign of the times when it comes to major M&A during a tough market.
Whenever a major piece of M&A activity is announced, the single most important pieces of information are the price paid and the valuation this implies. This is because it can determine whether the buyers or potential sellers are getting the better part of the deal and also whether the shares of peers in the same industry or sector are looking cheap or not (and therefore whether they could find themselves next on the block).
AJ Bell Investment Director Russ Mould said: “The latest proposed big deal involving gold miners – American producer Newmont’s $17 billion, all-stock deal for Australia’s Newcrest – suggests that the UK’s small remaining list of gold producers could indeed be cheap.
“Newmont’s lunge for Newmont will be seen by sceptics as another attempt to manufacture growth and momentum where little or none exists, since gold output grows only slowly and right now all-in sustained costs (AISC) are rising quickly, in no small part due to surging energy and staff costs, trends which rather dent gold miners’ perceived status as a hedge against inflation.
“Gold bugs, however, will argue that the proposed Newmont-Newcrest deal is simply further evidence that gold company executives see value that the stock market is overlooking, as gold mining shares flounder, despite fresh advances in the price of the precious metal: the price of gold is up by a quarter since the start of 2020 and the NYSE Arca Gold Bugs index, known as the HUI, is all but unchanged over the same time frame.”