Moody’s Approves of Newcrest’s Canadian Move

Moody’s ratings agency likes Newcrest’s $3.7 billion move to expand its Canadian gold mine portfolio, even though Australia’s biggest gold miner will take on more debt.

Newcrest will acquire the remaining 95.2% shares in Canadian gold producer Pretium Resources that it does not already own for around $US2.7 billion.

Pretivm’s only asset is the rich Brucejack mine located in British Columbia, Canada.

The consideration will be split evenly between cash and scrip. Newcrest expects to fund the cash component using its existing cash balance ($1.9 billion as of 30 June 2021) and its $2 billion of committed undrawn bilateral bank debt facilities.

“From a business profile perspective, the acquisition of Pretivm is credit positive given the Blackjack mine’s good operating characteristics,” Moody’s analysts said in a commentary.

“The mine has been operational since 2017 and would contribute to Newcrest’s cash flow upon transaction completion.”

Therefore Moody’s said the deal would have “no immediate effect on Newcrest’s ratings”

“Although the acquisition will raise Newcrest’s net debt considerably, we expect credit metrics will remain in line with Newcrest’s Baa2 rating parameters, reflecting its current strong balance sheet position and net cash position as of 30 June, Moody’s analysts wrote.

They particularly liked the structure of the way the $3.7 billion will be paid to shareholders of Canada’s Pretivm.

“Because the transaction is subject to an aggregate cap payable by Newcrest of 50% cash and 50% Newcrest shares, half of the acquisition consideration is likely to be paid in Newcrest shares, which reduces Newcrest’s cash outlay for the acquisition.”

Moody’s said that June 30 Pretivm was in a net debt neutral position with reported total debt of $195 million and cash of $203 million, “ o we do not expect Pretivm’s debt to affect Newcrest’s leverage materially.”

“The addition of Brucejack meaningfully improves Newcrest’s scale and operational diversity, which has relied on the Cadia mine in Australia and Lihir mine in PNG for the vast majority of earnings.

Brucejack’s location in Canada “a tier 1 mining jurisdiction, also reduces Newcrest’s proportional exposure to higher risk jurisdictions, namely Papua New Guinea and Ecuador.

“Based on Pretivm’s technical report as of 9 March, Brucejack’s gold production is likely to be around 311 thousand ounces (koz) of gold per annum at all-in sustaining cost (AISC) of $743/oz over a projected 13 year mine life.

“Pretivm has guided to 2021 gold production of 325-365 koz at AISC of $1,060-$1,190/oz. AISC per ounce is higher in the near term, but is likely to progressively decrease as current development levels at the mine are completed. On a pro forma basis, Brucejack would increase Newcrest’s fiscal 2021 (ended 30 June 2021) gold production 16%%, EBITDA by 13% and free cash flow by 22%.

More cash flow makes credit rating agencies happy, especially when a company take son more debt in an acquisition, which is what the Newcrest is doing.

Newcrest shares eased 0.9% to 425.19 on Tuesday after gold weakened a touch the day before.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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