Newmont-Goldcorp Merger can increase institutional interest in stocks

Image Courtesy by IgorGolovniov / Shutterstock.com

(Kitco News) – Analysts say Newmont Mining Corp.'s (NYSE: NEM) scheduled purchases of Goldcorp Inc. (TSX: G, NYSE: GG) can encourage further interest in the new company's shares from institutional investors since it becomes the largest gold producer in the world.

This will make the Newmont Goldcorp – the name of the merged company, assuming it gets all the necessary approvals ̵[ads1]1; "Go-to" fixed for investors who want exposure to the gold market through a mining fund. Nevertheless, an observer expressed mixed feelings about the recently announced agreement, since it limits the choices to the mining stocks for investors in general.

David Morgan, publisher of the Morgan Report, issued a notice saying he was not "particularly" favorable to the deal, but said the merger creates a leading primary producer with a deep pipeline of organic growth potential.

"This should be a gold investment vehicle over Barrick Gold, as it has better geographic diversity with 35% -40% of North America's production, Morgan said.

The majority of Newmont Goldcorp's mines will be land considered to be mine-friendly jurisdictions, making this company less risky than Barrick-Randgold mergers, Morgan told Kitco News in an interview.

Acadia Mining – owned by Barrick – is owned by a prolonged tax evasion with Tanzania. Following the merger with Randgold Resources Ltd. is one of Barrick's major mines also in the Democratic Republic of Congo, where the companies have been purchasing with the government in recent years.

Newmont Goldcorp's total production should increase in the future Given Goldcor's many Canadian projects, Morgan said.

This is likely to be preferred over Barrick's production profile, which has exposure to some countries with a higher land risk profile, such as the DRC, Morgan said. "But this is just the starting point, as both companies are likely to reposition and upgrade their respective portfolios over the next few years."

Morgan is not a big fan of the increased number of mergers in general, but he did not have any particular criticism of the Goldcorp-Newmont agreement.

"I don't like the philosophy, which means the bank, as [the gold sector] is becoming more and more consolidated into larger and larger and larger corporations," Morgan said. "It gives investors less choice and … there is less incentive to be competitive or ahead."

Meanwhile, Credit Suisse updated an early morning early reaction to the merger on Monday afternoon. Analysts noted that a conference call from company officials was "light on detail" about an estimated $ 100 million in annual pre-tax synergies and an expected $ 1 billion to $ 1.5 billion in sales.

Nevertheless, Credit Suisse said the deal "makes sense to us" from Newmont.

"Generalist capital in the gold room tends to flow to large-scale companies, geographic diversification and an attractive dividend," Credit Suisse said. "The merger between Newmont and Goldcorp gives the Newmont scale as the world's largest gold company measured by market value, production or reserves. We believe that much of the motivation to make the deal was driven by Newmont's desire to remain as the biggest gold company, a title it lost after The Barrick deal, and to remain go-to name in gold. "

The status of the world's largest gold mine is likely to increase the interest of institutional investors," said Credit Suisse in its original note.

"NEM [Newmont] also buys GG [Goldcorp] shares in decades and should be able to improve operations at GG's mines given its strong / consistent track record," Credit Suisse stated.

The main problem could be shareholder approval of Goldcorp shareholders, added Credit Suisse, but noted that the merger is likely to get the necessary votes.

"It will determine whether GG [Goldcorp] shareholders view the ABX [Barrick] en premium agreement [with Randgold] as the benchmark index, in which case they will see the Newmont agreement so attractive or whether they look at historical GG share price and v