The Telfer gold-copper operation. Source: Newcrest Mining

In a major announcement, Newcrest Mining (ASX:NCM) confirmed it has approved a monumental takeover offer from Newmont (NYSE:NEM), a deal estimated to be worth A$28.8 billion ($19.2 billion). This colossal business merger is expected to create the world’s premier gold mining enterprise.

The deal is structured such that Newcrest shareholders will acquire 0.4 shares of Newmont for each Newcrest share they hold. This arrangement allows them to secure 31% ownership in the resultant merged entity, a fact affirmed by the Melbourne-based firm, following a Bloomberg News report from Sunday.

The agreement culminates in an inferred enterprise value for Newcrest of A$28.8 billion, incorporating the net debt. Furthermore, Newcrest is committed to disbursing a franked special pre-completion dividend, reaching up to $1.10 per share. Preceding this agreement, Newcrest had consented to extend Newmont’s due-diligence rights to May 18, post the expiry of an earlier deadline.

Newcrest’s chairman, Peter Tomsett, lauded the transaction, stating, “This transaction will combine two of the world’s leading gold producers, bringing forward significant value to Newcrest shareholders through the recognition of our outstanding growth pipeline.”

The expanded Newmont will possess gold assets spread across the globe from North and South America to Africa, Australia, and Papua New Guinea. The merger also signifies an expanded interest in copper, a critical metal in the clean energy transition.

This transaction could potentially represent the zenith of a rapid five-year consolidation amongst the world’s top gold miners, a trend that took off with Barrick Gold Corp’s $18 billion acquisition of Randgold Resources Ltd. and includes the recent $5.2 billion takeover of Yamana Gold Inc. in March. The announcement of Newmont’s proposal coincides with a time when the spot trading price of bullion is nearing a historic peak, amidst global stagflation concerns.

Newmont initially proposed a $17 billion non-binding bid to its Australian counterpart in February, which was turned down by Newcrest’s board. In April, the US company increased the offer to $19.5 billion, terming it as the best and final offer. Sherry Duhe, Newcrest’s chief executive officer, has stated that the board was ready to endorse the proposal to its shareholders, contingent upon successful due diligence.

The global gold mining industry is grappling with the prospects of stagnant production, increasingly challenging mining deposits, and escalating input costs. These industry hurdles are thought to be a driving force for more mergers and acquisitions, as firms strive for expansion to escalate production and gain efficiencies through economies of scale.

Newcrest’s allure for Newmont extends beyond its five gold mines spanning three continents, as the Australian company generates approximately one-fourth of its revenue from copper. Newmont, currently facing a decade-long slump in gold, has expressed a desire to diversify, aiming for more of the energy-transition metal in its portfolio.



The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.
Gold, the oft-viewed safe-haven precious metal, has been having quite a year. Some of the major gold miners, including Franco Nevada Corp. (TSX:FNV) (NYSE:(FNV), Newcrest Mining Ltd. (TSX:NCM)(ASX:NCM), and Newmont Corp.(TSX:NGT) (NYSE:NEM), have been expanding their project portfolios quickly as the global economic reopening continues. These stocks have always been at the top of the list for investors looking for long term exposure to gold. Gold stocks have typically been a great way for investors to gain exposure to the yellow metal. 

Companies engaged in exploration, mining, and trading often have good returns and revenues. The past year has seen the VanEck Vectors Gold Miners ETF (GDX) underperform the broad market in the last 12 months, but the 11.8% return was more than solid. It is only against the backdrop of a 46.2% gain for the iShares Russell 1000 ETF or the S&P 500 that comparisons lose steam. 

Mining for Gold Value

Gold mining companies within gold indexes, however, have been generating asymmetric returns. Many of the winners have continued to scoop up the gains of a rising gold price and a favorable market. Today we’ll take a look at those stocks which may be undervalued according to it’s P/E for June 2021.

Stock picking is often thought of as the reserve of people who have a special talent or gift, however, value investing is as simple as figuring out whether a business’s stock is cheap compared to its intrinsic value as measured by its price-to-earnings ratio. Taking a look at the 12-month trailing P/E ratio, the best value gold stocks are Centerra Gold Inc. (TSX:CG) (NYSE:CGAU), Jaguar Mining Inc. (JAG.TO), Torex Gold Resources Inc. (TSX:TXG), Karora Resources Inc. (TSX:KRR)), and Kinross Gold Corp. (TSX:K)).

Centerra Gold (TSX:CG) (NYSE:CGAU)

The Canadian gold mining and exploration company operates three mines at the moment producing 824,059 ounces of gold and 82.8 million pounds of copper in 2020 alone. The company ran into a speed bump at its Kumtor Mine in the Kyrgyz Republic when the Kyrgyz Government took control of the mine in mid-May. The company lost control of the mine and suspended previously issued guidance for 2021 due to the uncertainty of the situation. However, with a 12-month trailing P/E ratio of 4.1, the company could be a value play for some portfolios. 

Jaguar Mining Inc. (TSX:JAG) (OTC:JAGGF)

Our second Canuck on the list explores and develops gold properties in the Iron Quadrangle in Brazil, a profitable greenstone belt in Minas Gerais, Brazil. With a 12-month trailing P/E of 5.4, Jaguar (TSX:JAG) (OTC:JAGGF) is a technical value play for a company operating in an area of mineral exploration dating back to the 16th century. 

Torex Gold Resources (TSX:TXG) (OTC:TORXF)

Torex’s 100% owned Morelos Gold Property comprising 29,000 hectares in the Guerrero Gold Belt in Mexico is the flagship project for the company, in a portfolio that includes two other major mines in Mexico. The company’s P/E of 6.7 may be an indicator of an undervalued company waiting for the right attention from investors.

Karora Resources Inc. (TSX:KRR) (OTC:KRRGF)

Both of the company’s primary gold-producing operations are located in Australia along the Norseman-Wiluna Greenstone Belt. Net earnings for Q1 2021 came in at more than ten times YoY as revenue grew 9.2%. The company’s P/E of 6.7 could be an indication of a value play waiting to be unlocked with the kind of financial results from the first quarter of this year.

Kinross Gold Corp. (TSX:K) (NYSE:KGC)

With a diverse portfolio spanning Brazil, Chile, Ghana, Mauritania, and Russia, and forward guidance of 2.4 million gold equivalent ounces for 2021, Kinross (TSX:K) (NYSE:KGC). Net earnings rose 21% as revenues grew 12.1%, possibly making the company’s P/E of 6.8 a value indicator for 2021.

Hunting for Deals

Undervalued companies can be opportunities to pick up shares at bargain prices before the rest of the market figures it out. Stocks like Centerra Gold (TSX:CG) (NYSE:CGAU), Jaguar Mining Inc. (TSX:JAG) (OTC:JAGGF), Torex Gold Resource (TSX:TXG) (OTC:TORXF), Karora Resources Inc. (TSX:KRR) (OTC:KRRGF), and Kinross Gold Corp. (TSX:K) (NYSE:KGC) could be the value buys for 2021 for investors looking to add some gold stocks to their portfolios. 


The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above. 

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