Newmont and Goldcorp Merger Could Create Shareholder Value

World’s largest gold-mining company

The completion of the Newmont Mining (NEM) and Goldcorp (GG) merger on April 18 created the world’s largest gold producer. The merger will combine Newmont Mining’s 68.5 million ounces and Goldcorp’s 52.8 million ounces to form the world’s largest asset base. The combined company expects that after selling its non-core assets, it could maintain annual gold (GLD) production of 6.0 million–7.0 million ounces.
Newmont and Goldcorp Merger Could Create Shareholder Value

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Largest reserve and resource base

The combined company would also have the largest gold reserve and resource base and the highest gold reserves per share in the world. Also, the company’s assets are set to be located in the world’s most mining-friendly jurisdictions, which gives it a competitive advantage.

Assets located in riskier jurisdictions increase the costs of doing business. The assets are vulnerable to local policy changes. Barrick Gold’s (GOLD) Tanzanian subsidiary, Acacia Mining, has been struggling with local tax laws for the last few months. Last year, Kinross Gold (KGC) suffered due to its presence in Russia and Africa, growing nationalism, and US (SPY) (VTI) sanctions on Russia (RSX).

Increased shareholder returns

The main motivation behind the Newmont Mining and Goldcorp merger was to increase shareholder returns. The combined entity will likely focus on advancing projects that meet its minimum hurdle rate of 15%. The merged company is targeting $1 billion–$1.5 billion in asset divestitures over the next two years. The company has already identified $100 million in annual pre-tax savings. The company is expected to deliver the highest dividend among senior gold producers (GDX).