Newmont Mining Corp. should regain its crown as the world’s biggest gold producer once it completes its $10 billion acquisition of Canada’s Goldcorp in the second quarter.
But how the acquisition pans out long-term for shareholders will depend on how much of the deeply buried value within Goldcorp that Newmont can extract and bring to the surface.
“One of the things that Goldcorp did during the downturn five or six years ago was suspend their exploration work,” said Newmont CEO Gary Goldberg. “We see some opportunities there to do some additional drilling.”
Putting more money into exploration using Newmont’s proprietary drilling techniques should boost gold reserves in the future. And adding Goldcorp mines in Canada, Mexico and South America will broaden Newmont’s geographic reach, which is currently concentrated in the U.S., Australia and Ghana, Africa.
But the biggest upside could come from implementing a program called Full Potential that has allowed Newmont to produce as many ounces as it did in 2013 with half the number of workers.
Newmont boosted its productivity by deploying technology, implementing more efficient work methods, selling off more labor-intensive mines and giving individual mine managers and crews more autonomy.
And sometimes creating more value requires digging less and waiting for a more opportune time.
Newmont Goldcorp is targeting combined production of 6 million to 7 million ounces of gold a year, which is below 8 million ounces the two companies had projected separately, said J.P. Morgan analysts John Bridges and Siddharth Mishra in a research report.
“The reset should provide greater certainty that the new projects will only be developed when the market is ready,” they said.
Bridges and Mishra estimate that the stock market discounted Goldcorp’s shares by 50 percent to 70 percent from its underlying value. Newmont paid a 17 percent premium to the company’s stock price.
The value is there to extract, the question will be if Newmont can do it in a way that the Goldcorp team couldn’t. Newmont is expected to sell off $1 billion to $1.5 billion in holdings after the combination is complete, with more sales of mines to follow.
Goldberg said the acquisition likely won’t result in more hires or jobs relocated to the company’s headquarters in Greenwood Village, which counts 400 employees and 300 contractors.
“We shouldn’t need to add too much of anything to our headquarters,” he said. To get closer to Goldcorp’s mines in Canada, the company plans to move its regional base for North American operations from Elko, Nev., to Vancouver, British Columbia.
The company employs another 600 workers in Teller County at its Cripple Creek & Victor Gold Mine, which it purchased for $820 million in 2015. In total, Newmont employs 25,000 people, while Goldcorp employs 15,000.
Goldberg, who took over Newmont in 2013, said the company has had discussions with Goldcorp and other precious metal miners over the years, but they didn’t come to anything.
“We heard rumors of them having discussions with another party. We had run our own numbers. We asked, ‘Would you guys be interested in teaming up?’ And they responded,” said Goldberg. The deal came together quickly but required long hours of work over the holidays.
