Gold M&A back with a bang as Newmont bids for Newcrest

After a slow end to 2022 for investment bankers, a recovering global equity market has been met with a revival in M&A activity.

The purchase of a stake in Sainsbury’s by Bestbuy sparked a fresh wave of speculation around interest in the UK supermarkets here in the UK.

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However, it is now major gold producers under the microscope with news of a $16.9bn offer for Newcrest by Newmont. Should the deal be completed, the combined entities would be one of the world’s largest precious metals miners.

Newmont’s offer sent Newcrest’s shares 9% higher on the Australian Stock Exchange overnight. However, some analysts see the offer as an opening gambit, which will need to be improved upon.

“We think Newcrest is now in play, but if a deal is to be done, it will likely need to be at a higher price,” wrote Jon Mills, Morningstar analyst, in a note to clients.

“Other major gold miners may be interested in Newcrest given the quality of its assets.”

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FTSE 100 Fresnillo was one of few gainers on Monday following the announcement as the sector perked up ahead of possible consolidation across the industry.

However, shares in Endeavour Mining, the £4.5bn West-African focused FTSE 100 gold miner, were unenthused by the news.

Acacia Mining was previously London’s largest listed gold pure play before it was acquired by Barrick Gold in 2019. Acacia Mining was formerly known as African Barrick Gold.

The Newcrest deal will be of particular interest to Greatland Gold shareholders due to the possible implications for their Havieron joint venture in Australia. Greatland Gold shares were 7% higher at the time of writing.

Gold price

Until Friday’s bumper Non-Farm Payroll in the United States, gold had been ticking higher on hopes the current interest rate hiking cycle us nearing an end, as well as a feeling dollar strength would soon fade.

“Gold had been held back until recently by US dollar strength, among other factors, but the asset and the gold mining equity sector have started to perk up for three key reasons,” said Russ Mould, investment director at AJ Bell.

“First, hopes that interest rate rises are near their peak has a direct read-across to gold. The metal has been unattractive to investors in a rising rate environment because it doesn’t offer the attraction of a yield that you get with bonds. So, if rates aren’t going up much further, gold is getting back on the radar for more people.

“Second, investors have been looking more closely at the precious metal amid expectations that the US dollar will weaken, thereby making the commodity cheaper for non-US buyers; and third, gold is often considered to be an asset that might do well in a recessionary environment.”

“Adding takeover activity to the mix means gold stands to be a hot commodity once again.”

Friday’s Non-Farm Payrolls will take the shine of gold in the short term, but the dynamics discussed by Mould have historically played out in almost all economic cycles in recent decades.

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