Could the Newmont-Goldcorp Merger Form ‘The Go-To Gold Equity’?

Newmont Mining (NEM) and Goldcorp (GG) held a conference call on January 14 to brief investors and analysts on their merger. The combined entity is set to focus on advancing projects that meet its minimum hurdle rate of 15%, and the merged company is targeting $1 billion–$1.5 billion in asset divestitures over the next two years. The companies have already identified $100 million in annual pretax savings, which NEM CEO Gary Goldberg said has “additional upside from cross-savings.”

Newmont Mining (NEM) stated that its investment-grade rating profile and the equity-based Newmont-Goldcorp transaction are expected to give the new entity a strong balance sheet to fund its most promising projects, repay dues, and deliver superior shareholder returns. The new company’s solid asset base in mining-friendly jurisdictions is also expected to improve shareholder returns.

The new company’s improved asset base, cost savings, and balance sheet should boost shareholder returns. NEM CEO Goldberg said during the call that the company would “continue to have a laser focus on returns, including free cash flow and providing an industry-leading dividend yield. We intend to maintain a stable and sustainable annualized dividend of $0.56 per share, with the usual review and approval through our board process.”

During the conference call, Goldberg also said that “the combination is expected to be immediately accretive, and it positions Newmont Goldcorp as the go-to gold equity” (GLD) (JNUG). To achieve that position, the new company will have to assuage investors’ concerns about Goldcorp’s past performance by ensuring proper execution, reducing unit costs, and maximizing its accretive assets’ potential.