Newmont’s and Goldcorp’s valuation
Among senior miners (GDX), Newmont Mining (NEM) has the highest EV[1.enterprise value]-to-EBITDA multiple, 8.2x, which is 2% lower than its five-year historical average. On the other hand, Goldcorp’s (GG) multiple of 6.5x is 25.6% below its average—it fell 32% last year alone, on the company’s disappointing operating performance.
Catalysts from the merger
The Newmont-Goldcorp merger deal could offer significant synergies. The combined entity is expected to produce 6.0 million–7.0 million ounces of sustainable gold (IAU) per year, and since this production will come from the entity’s core and competitive assets, it should be of very high quality and reduce unit costs. Further reducing challenges and costs is the fact that the combined company will have the highest concentration of assets in mining-friendly jurisdictions among peers, with ~55% of its reserves in the United States, Australia, and Canada.
Whereas these factors could help the combined company command a premium after the merger, much of the outcome will depend on its post-merger project execution. Also, Newmont will need to assure markets that it can turn around Goldcorp’s weaker assets or sell them for a reasonable price.
Barrick’s rerating after the merger
Barrick Gold’s (GOLD) valuation changed after the announcement of its Randgold Resources merger, which will give the combined company the world’s highest concentration of Tier 1 gold (GLD) assets. Between the merger’s announcement on September 24 and January 2, GOLD’s valuation multiple rose by 14% in anticipation of synergies, cost savings, and increased returns. After Barrick and Randgold’s merger completed on January 2, GOLD’s multiple rose by 37% to reflect the combined entity’s value. For more on Barrick’s upside potential, read Can Barrick’s Valuation Rerate Further after the Merger?