“All that glitters is not gold”

A US$10 billion transaction. 7.8Moz of gold production in 2018. Five of the world’s 10 tier one gold assets. The dynamic of the gold sector has been altered fairly significantly in the past week. And yet nearly every article that I’ve read about the Newmont Goldcorp tie-up – now the largest gold producer in the world – has been negative.

Granted, the 17% premium isn’t ideal. Especially when compared to the zero-premium Barrick-Randgold buy out of 2018. And yes, there is some serious streamlining to be done, both of the company’s asset base and its organisational structure. Short-term, it’s going to be a bumpy ride, and there’s no way to sugar coat that.

But let’s look at the long-term prospects.

Tom Palmer who will head up the newly created Newmont Goldcorp may be a newcomer to the gold space, but he still has plenty of experience in mining, including more than 20 years with Rio Tinto. He’ll be leading a company which is able to produce 6-7Moz a year for decades, even after it drops selected assets, retaining what Newmont Goldcorp describes as “the sector’s largest gold reserve and resource base, and a leading project and exploration pipeline”.

It’s important to look a bit further than the financials. I think Gary Goldberg, Newmont’s CEO, hit the nail on the head when he said: “This combination will create the world’s leading gold business with the best assets, people, prospects and value-creation opportunities.”

People being the key word.

Let’s not forget that the Goldcorp portfolio includes projects that will become some of the most technologically advanced mines in the world. Porcupine (Borden Lake), Red Lake, Musselwhite. Even if the company sheds some of these assets as rumoured – mines which have been experimenting with battery-electric technology, automation and remote control, zero water… technologies that will radically change the way mines will operate going forward – its team will still retain knowledge and expertise that can be leveraged across other projects going forward.

After all, practice makes perfect and, having gone through the set-up and teething problems associated with these initial implementations, I’m sure the employees who make the cut will be ready to prove their worth and apply their experience and contacts across the newly trimmed Newmont Goldcorp portfolio.

And the expertise flows both ways; projects such as Cerro Negro and Penasquito, which Palmer has named checked in investor talks as having potential to add serious ounces, will also shine all the brighter for having Newmont’s people apply their know-how.

This is a strategic aquisition indeed.

And the purported $1.5 billion of assets that are sold (most of which are still quality projects) will make rich pickings for the rest.

It is worth remembering that old adage: ‘all that glitters is not gold’.