Newcrest Gold
The gold mining industry has seen a wave of corporate activity since 2018. Newcrest is
arguably one of the most desirable take-over targets in the industry for several reasons
that we discuss below. We therefore expect one of the majors to bid for Newcrest as a
key step to attaining definitive market leadership or one of the Asian players to bid for
the group as a means to join the major league.
Newcrest’s CEO, Sandeep Biswas, has led the group since mid-2014. During this time he
has consistently invested in metallurgical research and mining engineering, to the point
where we believe that Newcrest is the undisputed leader in high draw/deep block caving,
selective oxidation and coarse grind flotation. Without these breakthroughs, the group’s
mines wouldn’t have been nearly as profitable as they are.
While the industry was reining in capex and throttling exploration budgets post the GFC,
Newcrest invested heavily in exploration projects with billions of pounds of copper and
large gold endowments, suited to its industry leading skills (porphyries & epithermal gold
projects). This has positioned Newcrest as a valuable JV partner for exploration
companies, with its combined offering of patient capital and value-adding technologies.
At a time when the rest of the gold miners are rapidly running out of Ore Reserves,
Newcrest’s growth portfolio is just beginning to bear fruit and will catapult it to a new
relative position in the gold and copper mine rankings.
Thanks to the group’s strong balance sheet and first quartile costs, these growth
opportunities can be fully funded in-house, should the need arise. The investment case for
Newcrest therefore doesn’t rest on the need for a white knight bidder. In our experience
the group resembles some of the finest examples of excellence that the mining industry
has seen, and Newcrest will continue to thrive until the inevitable premium bid arrives.
What makes Newcrest such a compelling target?
1. Individual Mines with Significant Annual Production
Few gold mines produce more than 0.5m ozs on an annual basis and of those few
are wholly owned. This makes it hard to achieve economies of scale.
Cadia produced 913,000 ozs Au and 202m lb Cu last year (100% owned)
Lihir produced 933,000 ozs Au last year (100% owned)
2. Individual Mines with Large Ore Reserves and long lives
There are few individual mines holding more than 20 million ounces of
economically extractable Ore Reserves. So while a fair number of mining companies
have portfolios of smaller deposits that collectively tot up to 20m ozs of theoretically
mineable Resources, these hold little attraction for large corporates, as they lack scale
and seldom generate sound risk-adjusted returns.
