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Newmont (NEM) Buys Newcrest, Creates Industry-Leading Portfolio

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Newmont Corporation (NEM - Free Report) recently announced that, following the conclusion of due diligence, it has officially entered into a binding Scheme Implementation Deed (SID). Under the SID, it will acquire 100% of the issued share capital in Newcrest under an Australian court-approved Scheme of Arrangement.

Newcrest shareholders will get 0.400 Newmont shares for each Newcrest share, as well as a special dividend of up to $1.10 per share paid by Newcrest, representing a 30.4% premium. The payment of the special dividend is conditional on the scheme becoming effective. The deal, which gives Newcrest an implied enterprise value of A$28.8 billion (roughly $19.2 billion), is expected to be completed in the fourth quarter of 2023. Shareholders of Newmont and Newcrest will own roughly 69% and 31% of the combined entity, respectively, following the scheme's implementation.

The union of Newmont and Newcrest delivers an extraordinary value proposition for shareholders and other stakeholders, NEM noted. It establishes an industry-leading portfolio with a multi-decade gold and copper production profile in the most favorable mining jurisdictions in the world. The acquisition boosts Newmont's annual copper output - a critical commodity for the new energy economy - and adds almost 50 billion pounds of copper reserves and resources from Newcrest to its strong and well-balanced portfolio.

This acquisition is expected to result in a world-class portfolio of assets, primarily in favorable, low-risk mining jurisdictions, with the largest concentration of Tier 1 operations. With this portfolio, Newmont will be well-placed to create strong, consistent and long-term returns while achieving best-in-class sustainability performance in the future. The portfolio is expected to deliver around 8 million ounces of combined annual gold production upon the transaction closure and combined annual copper production of approximately 350 million pounds from Australia and Canada.

Newmont has identified the potential for significant synergies, with $500 million in total annual pre-tax benefits expected within the first 24 months of the transaction's completion. Pre-tax general and administrative synergies of around $100 million, generated by Newmont's scalable, integrated operating model with existing regional teams in Australia and Canada, will likely be achieved.

Supply chain synergies of roughly $200 million are also expected from best-in-class pricing and existing strong partnerships with key suppliers, smelters and equipment manufacturers due to exceptional economies of scale. At least $200 million of benefits are also anticipated from Newmont's proven “Full Potential” continuous improvement program, which reduces costs and increases productivity by rapidly replicating leading processes and advanced technology.

Price Performance

NEM’s shares are down 28.1% over a year, underperforming the industry’s decline of 11.8%.

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Newmont, on its first-quarter call said that it is on track to meet its attributable gold production projection of 5.7-6.3 million ounces for 2023. In addition, the company anticipates gold CAS between $870 and $970 per ounce and All-in sustaining cost (“AISC”) between $1,150 and $1,250 per ounce. For the second quarter of 2023, the company expects to produce around 24% of its full-year gold projection. The second half of the year is expected to deliver approximately 55% of its full-year gold production guidance

Zacks Rank & Key Picks

Newmont currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks to consider in the basic materials space include Steel Dynamics Inc. (STLD - Free Report) , Nucor Corporation (NUE - Free Report) and PPG Industries Inc. (PPG - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Steel Dynamics currently sports a Zacks Rank #2 (Buy). STLD’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 10.7% on average. STLD has rallied around 30.5% in a year.

Nucor currently sports a Zacks Rank #1. NUE’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 10.8% on average. NUE has rallied around 17.3% in a year.

PPG currently sports a Zacks Rank #2. PPG’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 6.8% on average. PPG has rallied around 16.7% in a year.

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