Why Goldcorp Rose as Much as 12.5% Today

Why Goldcorp Rose as Much as 12.5% Today

Goldcorp announced it has agreed to be acquired by Newmont Mining in a deal that would create the world's largest gold producer.

What happened

Barrick Gold is feverishly working on a strategic plan to boost output, lower costs, and perhaps retain its ranking as the world's largest gold producer. That last part just hit a snag.

Shares of Goldcorp (NYSE:GG) rose over 12% today after the company announced it had agreed to be acquired by Newmont Mining(NYSE:NEM) in a $10 billion stock-for-stock deal. As stated in the press release, "this combination will create the world's leading gold business." The combined company will be called Newmont Goldcorp, assuming the acquisition is approved by regulators. 

As of 10:45am EST, the stock had settled to a 9.6% gain.

So what

For each share of Goldcorp owned, shareholders will receive 0.328 shares of Newmont Mining and $0.02 in cash. When the acquisition closes, which is expected to occur in the second quarter of 2019, current Goldcorp shareholders will own 35% of the new company. 

Goldcorp and Newmont Mining also issued an investor presentation highlighting more details about the deal and proposed operations of the combined company. They expect Newmont Goldcorp to have annual gold production of 6 million to 7 million ounces, from sources including the world's highest concentration of reserves in Canada (an estimated 17 million ounces), the United States (an estimated 29 million ounces), and Australia (an estimated 20 million ounces). Given obstacles facing miners in South America and Africa recently, the ability to take geopolitical risks off the table could be a significant advantage insofar as providing certainty to shareholders is concerned. 

Newmont and Goldcorp expect the combined company to save $100 million in annual pre-tax synergies when the dust settles. They also plan for it to divest $1 billion to $1.5 billion in assets in the next two years.

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