Two of the world’s largest gold miners are set to merge as Australian company Newcrest recommended the takeover bid by American rival Newmont. Should the deal get past shareholders and regulators, Newmont would be the world’s largest gold and copper miner.
Newcrest was originally formed by Newmont in 1966 as a subsidiary but was divested by the company in 1980. Coming full circle however, the company now wishes to return Newmont to the Newcrest family and has made an offer of $29 billion Australian dollars to acquire it.
Newmont owns a number of high-quality gold mines across Australia, Papa New Guinea, and Canada, and will substantially increase the gold and copper output of Newcrest. The company estimates it will have a total gold output of 8 million ounce should the deal go through. At the current spot price of $2,000 per ounce, this would be an annual gold value of $ 16,000,000,000 for Newcrest.
The mining industry has seen a number of high-profile takeovers in recent years, as companies look at consolidation to try and reduce costs and build larger portfolios of mines. Newmont and Newcrest hope to have the deal finalised by the end of 2023 should it get the approval from shareholders and the Australian Foreign Investment Review Board.
The takeover comes as gold remains above $2,000 per ounce in a strong year so far. The outlook for gold remains uncertain for the months ahead, with positive and negative drivers present in the market, but forecasts expect gold to remain strong in the year ahead.
On the negative side, markets may be pricing in a US rate cut too early. Fed officials Thomas Barkin and Raphael Bostic both say they expect rates to remain high for longer than markets are currently predicting and could need to rise further if more progress isn’t made on inflation. If markets are wrong, then the dollar could be repriced higher in the coming weeks, adding pressure to a falling gold price.
A positive for gold however is ongoing high demand for the metal. ETF, bullion, and central bank demand have all grown considerably over the past few months, with China in particular a big driver. Coin and bar demand in China grew 34% year-on-year for Q1 2023 according to the World Gold Council’s latest demand report. China’s central bank continued to report further gold purchases as it moves away from the dollar.
The US debt ceiling showdown also rumbles on; a meeting between President Biden and McCarthy was postponed last week, as deep divides remain between the two parties, and is currently schedules to take place today. There is now just two weeks to go until the US hits the suggested default date of June 1st. With both sides warning progress on a compromise has not been made, a potential debt default is weighing on markets around the world.
