Shares in Australian gold mining magnate Newcrest Mining Ltd (ASX: NCM) are slipping into the red this morning following a company update.
Newcrest announced it has agreed to buy Canadian metals and mining company Pretium Resources.
The deal is an optional exchange of A$20.03 per share or 0.8084 Newcrest shares for each Pretium share held.
On an undiluted basis, this values Pretium at around $2.8 billion, a 23% premium to its current enterprise value of $2.3 billion.
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Newcrest buys Pretium for immediate free cash flow
The Australian based gold miner is set to pay a 23% premium to Pretium's closing share price on Monday, valuing the deal at almost $3 billion.
Newcrest already had a 4.8% stake in its Canadian counterpart, and following the acquisition, will now lay claim to the Brucejack operation in the 'highly prospective' Golden Triangle region of British Columbia.
The Brucecjack site was started in 2017 and is now one of the highest grade operating gold mines in the world, according to Newcrest.
It has an estimated gold production of 311 thousand ounces (Koz) per year at an all-in sustaining cost (AISC) of $743 per ounce, and a projected mine life of 13 years.
Pretium's board has unanimously voted its shareholders to accept the deal, however to proceed, it must receive approval from 66.66% of all its shareholders.
Not only that, the transaction must still be approved by the Supreme Court of British Columbia and pass a number of stress tests under the Canadian legislature.
Pretium shareholders can elect to receive a cash offer of C$18.50 per share (A$20.030/share) or 0.8084 Newcrest shares for each Pretium share held.
Those shareholders who do not elect any option will be defaulted a C$9.25 per share in cash and an exchange ratio of 0.4042 in Newcrest shares.
According to Newcrest's CEO Sandeep Biswas, the deal offers "immediate production, free cash flow and earnings diversification to Newcrest" and will fit 'seamlessly' into its current portfolio.
For instance, Newcrest sees an additional 300Koz per annum to its gold production to 'well over 2Moz' with the purchase. It also reckons the deal is accretive to its EBITDA and overall cash flow.
Completion of the transaction is targeted for Q1 of CY22 according to the release.
What is management saying?
Speaking on the announcement, Biswas said:
Following due diligence, we believe that as the owner and operator of Brucejack we can build on the strong foundations established by Pretivm and deliver significant additional shareholder value by leveraging our experience in operating epithermal gold mines and applying our exploration and innovation expertise to realise potential resource and reserve growth. Resource and reserve growth and our commitment to investing in the area will underpin the success and longevity of mining in the region for the benefit of the First Nations people, host communities, British Columbia and Canada.
Newcrest Mining share price snapshot
Newcrest and its share price have been swimming in a sea of red the last 12 months, having posted a loss of 21% in that time.
This year to date has been no different, with Newcrest shares sliding around 4.5% into the red at the time of writing since January 1.
Both of these results have lagged the benchmark S&P/ASX 200 index (ASX: XJO)'s return of around 20% by a considerable amount.
