Morningstar Investor users sign in here.

Stocks

Takeover bid undervalues Newcrest: Morningstar

Newcrest shares surged on news of a takeover offer, but Morningstar analysts say the deal likely won’t get up at this price.

Mentioned: Newmont Corp (NEM)


An ‘opportunistic’ takeover bid for Newcrest Mining (NCM) is unlikely to proceed but signals the gold miner is now in play, according to Morningstar equity analyst Jon Mills.

No-moat Newcrest on Monday confirmed it had received a conditional and non-binding indicative proposal from the world’s largest gold miner, Newmont Corp (NEM).

Under the offer, shareholders would receive 0.38 Newmont shares for each Newcrest share they own, with Newmont also listing its shares on the ASX.

That values each Newcrest share at about AUD $27.45, which Mills says is around 13% below Morningstar’s fair value estimate of $31 per share.

“We think the offer undervalues Newcrest and is unlikely to succeed given its terms are favourable to Newmont,” Mills says.

“In our view, Newmont’s bid is opportunistic given the recent departure of former Newcrest CEO Sandeep Biswas along with ongoing operational issues including at its Lihir and Brucejack mines, which we think are likely to resolve.”

He says Newmont is also taking advantage of the strong US dollar, which makes gold less attractive.

“We think Newcrest is now in play, but if a deal is to be done, it will likely need to be at a higher price,” Mills says.

Other miners could enter the fray, Mills says, given the quality of Newcrest’s assets.

“However, it is possible that no deal occurs and Newcrest remains a stand-alone company,” he adds.

Shares in Newcrest surged nearly 10% on news of the takeover bid.

Low costs, strong development pipeline


Newcrest was named on Morningstar’s list of top stock ideas for 2023, which identified high-quality businesses trading below value.

The company owns gold and copper mines in Australia, Papua New Guinea, Canada, and its minority-owned mines in Ecuador. Around 80% of its estimated midcycle revenue is from gold with most of the remainder from copper.

Mills says investor concerns around rising interest rates, and an underappreciation of Newcrest’s ‘substantial development pipeline’ had weighed on the share price.

"Despite near-term production issues, we think the company is generally well managed and importantly owns attractive assets," Mills says.

"Newcrest is bedding down its acquisition of Canadian gold mine Brucejack, and we think production will likely rise at its Lihir and Cadia mines."

The low-cost producer is also set to benefit from increased copper production over the next decade, he adds.

Newmont's offer is subject to due diligence, Newcrest granting Newmont exclusivity, Newcrest shareholder approval and other conditions.



© 2023 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This report has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or New Zealand wholesale clients of Morningstar Research Ltd, subsidiaries of Morningstar, Inc. Any general advice has been provided without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782.

More from Morningstar

Despite rally this A-REIT remains undervalued
Stocks

Despite rally this A-REIT remains undervalued

While attractive from a valuation standpoint we do not believe this A-REIT warrants a moat and is highly leveraged.
We advise waiting for a pullback before investing in the world's biggest company
Stocks

We advise waiting for a pullback before investing in the world's biggest company

We’ve raised our fair value estimate and sales forecast, but still see the stock as rich.
7 charts on the AI stock boom one year after ChatGPT’s launch
Stocks

7 charts on the AI stock boom one year after ChatGPT’s launch

These stocks and the key trends behind them are critical for understanding the AI investment landscape.
Why Berkshire Hathaway’s success will continue after Charlie Munger ... and Warren Buffett
Stocks

Why Berkshire Hathaway’s success will continue after Charlie Munger ... and Warren Buffett

Munger’s passing is a spiritual loss for the company.
Morningstar initiates coverage on 3 new shares
Stocks

Morningstar initiates coverage on 3 new shares

There are 2 undervalued names as part of our new coverage. 
3 shares for income investors
Stocks

3 shares for income investors

A dividend screen is a jumping off point for further research.