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CEO: Newmont Likes Goldcorp's Exploration-Pipeline Potential

Kitco News

Gary Goldberg

(Kitco News) - Newmont Mining Corp. (NYSE: NEM) is encouraged by the exploration potential of some of the properties that it will acquire from Goldcorp Inc. (TSX: G, NYSE: GG), assuming that a planned merger goes through, says Gary Goldberg, Newmont’s chief executive officer.

The CEO spoke with Kitco News Wednesday about the mega-merger that was announced on Jan. 14. The mostly all-stock transaction valued Goldcorp shares at $10 billion and would create the largest gold-mining company in the world, to be named Newmont Goldcorp.

Goldberg and other top Newmont officials are on an extensive road trip, discussing the merger with investors and others. Company officials have been trying to share what assets they like and which they think might need more work, the CEO said.

“The ones we really like would be Penasquito in Mexico, Cerro Negro in Argentina, and Musselwhite in Canada,” Goldberg said, referring to Goldcorp properties.

He also listed Eleonore, Porcupine and Red Lake, all in Canada.

“Those are assets that in some cases I think haven’t had some of the exploration, some of the focus and some of the rigor that we bring to some of our assets,” Goldberg said. “That will be important as we move forward.

“One common denominator is the exploration potential. There has probably been an underspend over the years on exploration.”

Goldberg said he sees a potential for improvement in some Goldcorp properties based on common traits with certain Newmont mines. For instance, he cited a similarity between Penasquito and Newmont’s Boddington operation, as well as Cerro Negro and Newmont’s Tanami.

At Tanami, Newmont made changes in its approach to mining and improved the efficiency, Goldberg said. As a result, the asset went from one that Newmont once considered selling into “one of the stars in the portfolio,” the CEO continued.

“It taught us along the way to make sure you take the time and go through it to properly assess the asset and understand its geological potential, understand the constraints and limitations, and really what can be done to make sure its performance – in terms of safety, cost and production – can be achieved to its full potential.”

Goldberg emphasized that the company will be focused on value, rather than any catchy programs targeting future production, such as the one Newmont once had for 7 million ounces by 2017, or Goldcorp’s 20-20-20 by 2021 program. The latter, launched in 2017, is a five-year goal seeking to increase Goldcorp’s production by 20%, reduce all-in sustaining costs by 20% and increase reserves by 20%.

“I found that … when you put those markers out, it sometimes sends out the wrong message internally in terms of what’s important,” Goldberg said. “I feel it’s important that value is what we’re about in this business…and that be the focus rather than some sort of production target along the way.”

Goldberg was asked which one or two factors most influenced company officials into wanting to acquire Goldcorp.

“At the end of the day, we have complementary assets,” Goldberg said. “This allows us to basically put a portfolio together … [that] allows us to produce a consistent 6 to 7 million ounces of gold a year, not only for the next seven or so years but out for the next couple of decades.”

In 2017, Newmont output was 5.3 million ounces and Goldcorp’s was 2.6 million.

This is the third major deal in the precious-metals sector in recent months. Barrick Gold Corp. (NYSE: GOLD; TSX: ABX) acquired Randgold Resources Ltd. and Pan American Silver Corp. (Nasdaq, TSX: PAAS) is in the process of acquiring Tahoe Resources Inc. (NYSE: TAHO; TSX: THO). Goldberg said that “I wouldn’t be surprised if you see some other people start to look at what fits for them,” with more mergers possible. In the case of Newmont-Goldcorp, however, he said specific circumstances were responsible for the deal rather than any special market conditions or joining any trend.

“Over the years, we’ve maintained a relationship with the team at Goldcorp,” Goldberg said. “We worked with them and talked to them about other opportunities we could work on together.”

Newmont officials internally had talked about the potential for such merger options but had not spent a much time talking with Goldcorp officials specifically about this, the CEO said. “We heard rumors of another party that was in discussions, so we decided it was a good time to have those discussions.”

There are several steps to be completed for the merger to occur, including shareholder approval. Goldberg said that shareholder voting would probably occur in April or May.

The merger announcement said the new company could undertake $1 billion to $1.5 billion in divestitures. Goldberg said there will be a thoughtful process on how to go about making these decisions, based on value and risk. The company wants to communicate with other stakeholders that are affected, such as employees, communities and government officials, Goldberg said.

“As you can imagine, we don’t want to get into naming any specific assets because you want to take time to better understand [them],” Goldberg said. “We never do announce what we have for sale.”

The merger announcement said Goldberg will lead Newmont Goldcorp through closure of the transaction and integration of the two companies. This should be “substantially completed” in the fourth quarter, the companies said. At that time, Tom Palmer, who will be president and chief operating officer, will become president and CEO of the new company.

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