Newmont Mining Corp. on Monday announced it will pay its shareholders a “special” dividend if it completes its US$10 billion acquisition of Vancouver-based Goldcorp Inc.
The 88 U.S. cents dividend will cost Newmont roughly US$470 million in aggregate, and is payable only if Newmont completes its Goldcorp deal.
In an interview with the Financial Post, Tom Palmer, president and chief operating officer of Newmont, who is slated to become chief executive later this year, said the dividend is meant to assuage investors who have criticized the deal. He said it reflects the fact that Newmont negotiated its term sheet with Goldcorp, and then subsequently struck a major joint venture deal with Barrick Gold Corp to share assets in Nevada, that is projected to save billions of dollars over the next 20 years.
“This is a unique set of circumstances,” said Palmer, “where he have an acquisition under way and then a (joint venture) in Nevada with Barrick.”
The $470 million dividend payout will come directly from Newmont’s cash on hand, which was reported as US$3.4 billion at the end of 2018, not counting US$900 million in debt.
Palmer said the joint venture with Barrick provides billions of dollars in synergies that, theoretically, increase the value of Newmont, and many large shareholders have expressed concern that a large portion of that value is flowing through to Goldcorp shareholders.
He said Newmont didn’t want to renegotiate the terms of the deal with Goldcorp because there’s risks to renegotiating a deal; and also as Newmont delays taking over Goldcorp’s assets, there’s “value leakage.”
“We’ve been out actively engaging our large and long-held shareholders,” said Palmer, adding, the proposed dividend “was partly linked to the feedback we were getting from shareholders in terms of how to manage this.”
The move appeared to resonate with shareholders, with a spokesperson for U.S. Billionaire John Paulson’s hedge fund, Paulson & Co. saying Monday that although the Newmont dividend was “small, it is a step in the right direction,” and that it no longer oppose the deal.
Last week, Paulson, who has pledged to bring greater accountability to the gold sector, raised concerns that the price tag for the Goldcorp acquisition — a nearly all-stock deal in which Goldcorp shareholders would receive 35 per cent of the combined company — is too high and dilutive to Newmont shareholders.
In a letter to Newmont’s board released last week, Paulson was critical of the Goldcorp deal in general, noting that Goldcorp’s gold production and cash flows both decreased in 2018, and yet the Newmont buyout provides a 17 per cent premium to the company’s shareholders.
They had argued that the value of the Barrick joint venture was being passed to Goldcorp shareholders, and that Goldcorp should receive less than 35 per cent of the newly combined company.
Newmont, however, elected to provide a onetime dividend to any shareholder as of April 17 rather than renegotiating the terms of its deal.
For Paulson & Co, which said it has purchased roughly 14.1 million shares so far in 2019, making it one of Newmont’s largest shareholders, this could put it in line for a US$12.4 million payout.
Calculating how much value the joint venture with Barrick will create for Newmont shareholders is a complicated question: Barrick chief executive Mark Bristow has claimed it would provide $4.7 billion in cost synergies over the next two decades, or about $500 million per year.
Newmont chief executive Gary Goldberg initially expressed skepticism, but Palmer said the company accepts the number and based its dividend to compensate shareholders based on those level of synergies.
“Our view is this does address the outstanding concerns,” said Josh Wolfson, an analyst with Desjardins Securities.
Wolfson said Newmont’s latest dividend implies the synergies are roughly in line with what Barrick projected once taxes are taken into consideration.
Our view is this does address the outstanding concerns
Josh Wolfson, analyst, Desjardins Securities
He pointed out that last October, before Barrick completed its acquisition of Randgold Resources Ltd., the latter company increased its dividend to shareholders from US$2 to US$2.65.
Other Newmont shareholders have taken issue with a different aspect of the deal: Goldcorp executive chairman Ian Telfer is slated to receive a US$12 million retirement allowance, up from US$4.5 million, if it is completed.
The British Columbia Investment Corporation, one of the country’s largest pension managers, said last week it decided to vote against the deal primarily based on that factor, given that Goldcorp’s value has declined by more than half since 2006, and its buyout comes as its shares trade at a near decade-low.
Goldcorp shareholders are scheduled to vote on the acquisition on April 4 and Newmont votes on April 11.
Palmer said within 30 days of the close, Newmont would send a team to Goldcorp’s Pensaquito mine in Mexico and find ways to operate it more efficiently.
Despite all the criticism, he said the US$10 billion acquisition — among the largest in mining history — would provide ample value for Newmont shareholders.
“We’re very confident that people will look back and say both the Nevada (joint venture) and the Goldcorp acquisition were very accretive,” said Palmer.
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