Gold SWOT: Newmont has agreed to acquire Newcrest in a friendly all-share transaction

Strengths:

• The best-performing precious metal for the week was platinum, showing a 0.44% increase. AngloGold is changing its domicile and primary listing location. The new corporate structure will have a primary listing on the NYSE and secondary listings on the Johannesburg Stock Exchange, A2X Markets and the Ghana Stock Exchange. The reasons for this corporate restructuring include enhanced access to global capital markets, improved competitive positioning and a corporate domicile in a leading, low-risk jurisdiction.
• Newmont has agreed to acquire Newcrest Mining in a friendly all-share transaction. The deal offers 0.4 Newmont shares per Newcrest share, along with a special dividend of $1.10 per share paid to Newcrest shareholders. The total consideration for the acquisition amounts to $19.2 billion, aligning with Newmont's previous best and final offer announced on April 10.
• K92 reported Q1 financial results that exceeded consensus expectations due to lower operating costs. The company reiterated its guidance, with production weighted towards the second half of the year and targeting the lower end of the range following operational issues in Q1.

Weaknesses:

• The worst-performing precious metal for the week was gold, showing a 2.08% decrease. Gold strung together three days of losses before rebounding slightly on Friday. Robust labor market numbers and optimism on a debt ceiling deal weighed on prices most of the week.
• Centerra Gold reported Q1 earnings per share (EPS) of -$0.24, significantly missing the consensus estimate of -$0.07. The EPS miss was primarily driven by higher operating and exploration expenses. Q1 cash flow per share (CFPS) was -$0.45, also missing the consensus estimate of $0.21.
• The value of polished stone exports from India, which serves as a proxy for demand, declined by 39% year over year (YoY) and 17% month over month (MoM). Volumes also decreased by 32% YoY and 19% MoM, indicating broadly stable monthly prices but an 11% YoY decrease, possibly influenced by changes in product mix.

Opportunities:

• Wheaton Precious Metals announced a financing package of up to $300 million for Lumina Gold. In return, Wheaton Precious Metals will receive a 6.6% gold stream on the Cangrejos project. The financing commitment will be made through spaced-out cash payments, starting with a $48 million upfront deposit, which will be divided based on transaction and project milestones. The gold stream will reduce to 4.4% after 700,000 ounces have been delivered, and Wheaton Precious Metals will also make ongoing production payments tied to the gold spot price.
• Scotia highlights Kinross Gold's focus for 2023, which includes further de-risking key assets. This involves delivering on the Tasiast 24,000 mill expansion by mid-2023, conducting a preliminary economic assessment (PEA) at Great Bear in early 2024, de-risking the mine plan at Round Mountain, progressing on the Manh Choh satellite development project and advancing the Curlew pre-feasibility study, expected to be completed in Q2 of 2024.
• Bloomberg reports that copper is at the heart of the latest spending spree by miners, amid expectations that demand for the metal will rise as the world decarbonizes. Electric vehicles and wind farms use copper in much greater quantities than gasoline-powered cars and coal-fired power stations. Tom Palmer, Newmont's president and chief executive, said the opportunity to produce more copper had been a key attraction of a deal to acquire Newcrest along with the size of its resource base that can sustain mining for decades. The location of Newcrest's mines in low-risk jurisdictions such as Canada and Australia also bolstered the appeal of a takeover.

Threats:

• Automakers are increasingly substituting platinum for palladium in catalytic converters, resulting in a potential deficit in the palladium market for the first time in two years, according to Johnson Matthey. Demand from automakers is expected to exceed 3 million ounces, marking a shift in preference towards platinum and a decline in palladium usage. This poses a significant threat as both metals are used to reduce emissions from car exhausts.
• Centerra Gold faces near-term headwinds that could limit immediate-term upside. These include upcoming elections in Turkey, scheduled to conclude on May 28, uncertainty regarding the timing of the permit for the restart of their Oksut mine in Turkey (as mining permit issuance is typically low during election cycles), and the upcoming VanEck Vectors Junior Gold Miners ETF (GDXJ) rebalance on June 9, which may result in additional selling pressure.
• South Africa faces a “difficult winter” as it heads into the cold months with 3,000 megawatts less capacity than last year, Eskom Holdings SOC Ltd. acting Chief Executive Officer Calib Cassim told reporters on Thursday. The utility envisages a worst-case scenario of having to cut 8,000 megawatts from the electricity grid — a process known locally as loadshedding — which would entail 16 hours of outages in a 32-hour cycle. The blackouts and the deteriorating economic outlook have weighed on investor sentiment, with the rand dropping 12% this year — the worst performance among major currencies monitored by Bloomberg.