Gold watcher on Newmont’s US$15 billion acquisition of Newcrest
Jordan Fleguel, BNN Bloomberg
Australian-based mining company Newcrest is set to be acquired by American gold giant Newmont in what is estimated to be largest-ever takeover in the gold sector, but an analyst says he’s skeptical about the deal.
Newcrest shareholders voted on Friday to approve the US$15 billion sale, following a unanimous vote from Newmont shareholders earlier in the week, clearing the path for the deal to go through.
Veteran gold watcher John Ing told BNN Bloomberg that Newmont is still grappling problems it inherited from Goldcorp after the two companies merged in 2019, and he predicted that another large-scale acquisition will bring additional challenges.
“Sometimes with these acquisitions, you buy other people's problems,” Ing told BNN Bloomberg in a television interview Friday morning.
Ing, president and CEO of independent investment bank Maison Placements Canada, said that Newmont is “trying to put Humpty Dumpy back together again,” as Newcrest was a spin off of the Denver-based company in the 1990s.
While the acquisition is likely to save Newmont money through synergies in the short term, Ing said he’s unsure about the long-term outlook.
“They can lop off maybe a half a billion dollars in savings, but I just wonder whether this is going to work out longer term,” he said.
‘A LOT TO MANAGE’
According to Ing, Newmont now runs the risk of spreading itself too thin if it acquires more mining operations than it can handle.
“When you get to a certain size, they'll have something like 21 mines in about 10 jurisdictions, and that's a lot to manage,” he said. “I can recall some of these gold miners when they went from one to two mines to three mines, that it was difficult.”
Ing said Newmont shares have underperformed compared to other gold companies recently, citing the logistical problems they inherited from Goldcorp, including labour and production challenges.
Newmont’s main competitor, Toronto-based Barrick Gold Corp., has largely outperformed Newmont this year, and Ing said Barrick’s focus on spreading out the decision making amongst its mines has contributed to its success.
“Gold mining is a business where you need hands on,” Ing added.
GOLD STOCKS ‘FUNDAMENTALLY UNDERVALUED’: ING
Despite his skepticism about the Newmont takeover, Ing said he remains high on gold stocks, even if they aren’t particularly popular right now.
“Gold stocks are fundamentally undervalued … but the problem is that gold stocks are not in favour, and what is going to turn that I think is exploration. We need a discovery,” he said.
“Some of the development guys are looming … one of these days it will be popular again.”
Ing also said he expects the price of gold to rise again soon, predicting that it will rise above $2,000 per ounce in the near future, in tandem with a fall of the U.S. dollar.
“The (U.S.) dollar is going to go down,” he said.
“They are the biggest spenders in the world, they have the biggest debt in the world, so that currency is going to go down and gold's going to go up as a hedge.”