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The backstory: You know how gold has always been that friend who has your back during tough times (as it’s considered a “safe haven” investment)? Well, in March, it went from being a good friend to a superstar when its prices shot up above US$2,000 an ounce, reaching a yearly high. It all happened after some major bank failures in March, specifically big banks like Silicon Valley Bank and Credit Suisse.
Gold prices had started picking up speed with the onset of the pandemic and again with Russia’s invasion of Ukraine, eventually settling back down. But right now, it’s still hovering above the US$2,000 mark.
But while gold is living its best life, gold miners are struggling with production shortages and higher costs. That’s because a lot of deposits are harder to mine and the whole operation is costing more to run.
More recently: One way to deal with these challenges is for gold companies to grow and expand their resources. Right now, the world’s biggest gold company is US-based Newmont, and it’s looking to get even bigger.
In February, Newmont tried to buy Aussie gold rival Newcrest for about US$17 billion, but the board and interim CEO said, “No thanks” because the offer was too low. But then in April, Newmont came back with a sweeter deal of over US$19 billion, which the company said was its best and final offer.
The development: Now the deal is a go. Newmont is buying Newcrest Mining for a whopping US$19.2 billion. It's actually the largest deal ever in the gold industry, even bigger than when Newmont bought Goldcorp a few years ago for US$10 billion. Plus, this merger is the third-largest in the world this year.
This means Newmont will be way ahead of its nearest competitor, Barrick Gold, pumping out almost twice the amount of metal. The acquisition also gives the company access to a lot more copper, which will be a sweet gain as more economies move away from fossil fuels, as copper is really important for making electric vehicles.
The deal gives Newcrest shareholders 0.4 shares in Newmont for each share they own, meaning they'll own about a third of the new company. Plus, they'll even get a tax-free special dividend of up to US$1.10 per share before the deal is finalized in the fourth quarter of 2023. The only thing left to wrap things up is to get regulatory approval.
"This transaction would strengthen our position as the world's leading gold company by joining two of the sector's top senior gold producers and setting the new standard in safe, profitable and responsible mining," said Newmont CEO Tom Palmer in a statement last month.
"This transaction will combine two of the world's leading gold producers, bringing forward significant value to Newcrest shareholders through the recognition of our outstanding growth pipeline," said Newcrest Chairman Peter Tomsett.
“A sooner Fed pivot on rate hikes will likely cause another gold price surge due to a potential further decline in the U.S. dollar and bond yields,” said Tina Teng at the financial services company CMC Markets in March. She expects gold will trade between US$2,500 to US$2,600 an ounce.