The Midas Touch

Make way for the world's largest gold mining company

Image source: Africa Studio, d1sk - Shutterstock

What's going on?

American gold miner Newmont Mining said on Monday that it would buy Canadian rival Goldcorp, creating the biggest gold producer in the world (tweet this).

What does this mean?

The $10 billion deal outshines the golden handshake back in September that saw major Canadian competitor Barrick Gold acquire African-mining Randgold. But the thinking is the same: after a decade of cutting back on exploration, gold diggers are looking to kickstart growth again.

In what’s known as a stock-swap merger, Newmont’s offering Goldcorp investors around a third of a share in the new combined company for each Goldcorp share they currently own. The snappily named Newmont Goldcorp will have have the largest gold reserves in the game, expecting to produce between six and seven million ounces of gold annually – more than Barrick 2.0. That’s over 30 African elephants’ worth, in case you were wondering…

Why should I care?

For markets: Smelting a win.

With gold reserves dwindling and extraction costs growing, mining companies are digging deep for ways to save money. The new company should save about $100 million thanks to the removal of duplicate costs, and Newmont also plans to generate cash by flogging over $1 billion worth of less important mines. Newmont’s offer values Goldcorp 18% higher than its share price on Friday, but that may be a bargain – the stock has lost a third of its value in the last two years. Newmont’s shares nevertheless fell 5% on Monday, likely as investors fretted over the risk the treasure hunt doesn’t pan out as planned.

The bigger picture: All that glitters is gold.

After a steady decline for much of 2018, gold’s price has crept back up to a six-month high. Gold typically comes into vogue during times of economic uncertainty; people think of it as a safe haven for storing value. And the price of gold is quoted in US dollars – so when the dollar is down, gold starts looking cheaper to international buyers.

Originally posted as part of the Finimize daily email.

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