• Deal would create the world’s largest producer of gold
  • Mirrors Barrick Gold’s deal to buy Randgold in September for $6.1 billion
  • Company will be called Newmont Goldcorp and listed as NEM

American gold miners Newmont Mining have agreed a world-record deal of $10 billion to buy out Canadian rivals Goldcorp in a merger and acquisition similar to the Barrick Gold purchase of Randgold last September.

Newmont’s deal offers 0.3280 from each of its shares and $0.02 for each Goldcorp share, which equates to $11.46 per share based on Friday’s New York Stock Exchange valuations for the mining firm. In contrast, this price works out as a 17% premium compared to Goldcorp’s share valuation.

The deal will be finalised over the next month, with some suggestions that the initial $10 billion cost may be an undervaluation. The market response to the deal was a 2.6% share price drop for Newmont Mining and a sharp 13% rise for Goldcorp’s share price.

Gold mining has slowed down in the past decade with fewer precious metal veins easily accessible and a lack of investment in mining technology following the 2008/09 financial crisis. These latest buyouts are seen as a way to restart growth in the industry and re-establish mine reserves.

The latest round of global economic uncertainty (US trade war, Brexit, Chinese economic slowdown, Italian debt concerns) may not have boosted the gold price in Dollars in 2018 but it did in many other currencies, including Sterling, and with the US Treasury bond yields flirting with inversion – a sign of looming recession – many investors are cooling their interests in the ever-more-volatile US stock markets and choosing to spread their money around into safer assets; one of which is gold.

A joint statement was issued from both Newmont Mining and Goldcorp, with Goldcorp’s President and Chief Executive Officer, David Garofalo, saying: “This combination creates the world's premier gold company. In addition to the depth and quality of Newmont Goldcorp's operations, projects, exploration properties and Reserves, the combined company's assets will be centered in the world's most favorable and prospective mining jurisdictions and gold districts.”

The two major mining firms operate in similar areas of the world – North and South America, Australia, and a small operation in Ghana – producing a combined 7.9 million ounces of gold according to 2017 figures. The merger proposes a minimum output of 6 million ounces a year for the next decade, with Newmont and Goldcorp predicting savings of $100 million per year after they sell between $1 and 1.5 billion in underperforming assets.

BELOW: TV host and former hedge fund manager Jim Cramer explains on CNBC why he thinks the Newmont deal to buy Goldcorp is a worse deal than that of Barrick Gold acquiring Randgold.