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Mar 22, 2019

VanEck shares Paulson's concerns of 'outrageous payouts' in Newmont-Goldcorp deal

Paulson gives thumbs down to Newmont-Goldcorp deal

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Paulson & Co. isn’t the only Newmont Mining Corp. shareholder that’s expressing concerns over the terms of the gold miner’s US$10 billion purchase of Goldcorp Inc.

“I think Paulson has a valid point,” said Joe Foster, a portfolio manager at VanEck -- one of the biggest Newmont shareholders. When the deal was inked, investors were unaware of the “outrageous payouts” that would be given to Goldcorp executives after the merger, he said.

On top of that, it’s unfair that Goldcorp shareholders should benefit from a joint venture between Newmont and Barrick Gold Corp. in Nevada, given that was negotiated after the Goldcorp-Newmont terms were set, he said.

Mounting investor concerns sent Goldcorp shares tumbling as much as 5 per cent in New York. The shares closed down 3.2 per cent at US$10.80, while Newmont rose 0.5 per cent.

Newmont has no comment on the investor criticism, spokesman Omar Jabara said Friday by email. The Greenwood Village, Colorado-based miner has previously said a merger with Goldcorp would create more than US$4.4 billion in value. The combined company would be the world’s largest gold miner, with sustainable production of 6 million to 7 million ounces a year.

Committed to Merger

Goldcorp remains committed to the merger and will recommend shareholders vote in favor of it at a special meeting on April 4, spokeswoman Christine Marks said by email.

On Thursday, Paulson said it won’t support Newmont’s proposed merger with Goldcorp unless the terms are changed. Paulson said a 23 per cent reduction in the value of the transaction would help ease his concerns because under the current deal, Goldcorp shareholders are effectively receiving the benefits of the recently announced joint venture for free.

“I think Paulson’s analysis might be aggressive, but I think directionally they have the right idea,” Foster said in a telephone interview Friday. “I don’t think shareholders should support the lavish lifestyles of the Goldcorp executives for one thing. And secondly, Goldcorp shareholders are not entitled to the JV synergies because it was not part of the deal.”

Executive Payout

Shareholders including VanEck had previously blasted the increase in Goldcorp Chairman Ian Telfer’s retirement allowance to roughly US$12 million from US$4.5 million if the company completes its merger with Newmont. Initially, the plan was for Telfer to join Newmont’s board as deputy chairman. But earlier this month, Goldcorp announced he wouldn’t accept the new job.

British Columbia Investment Management Corp., which holds 3.85 million shares in Goldcorp and a small stake in Newmont, said Friday it would vote against the merger partly because of the payment that would go to Telfer. “This is inconsistent with the governance principle of pay-for-performance and sets a troubling precedent in the capital markets,” BCI said in a statement.

Foster said he has not yet decided whether he will vote for the deal. VanEck held 5.9 per cent of Newmont shares and about 6.2 per cent of Goldcorp shares outstanding at the end of 2018, according to data compiled by Bloomberg. At Thursday’s closing prices, that Newmont stake would be valued at US$1.08 billion versus US$596.4 million for the Goldcorp stake.

Record Date

Newmont investors who held shares as of the Feb. 20 record date will be allowed to vote on the merger on April 11, according to Newmont’s proxy materials. A spokesman for Paulson said the hedge fund acquired 14.2 million shares this year but declined to comment on whether they were purchased before or after the record date.

Paulson sold its entire position in Goldcorp in 2019 for the reasons explained in the statement, the spokesman said. According to data compiled by Bloomberg, Paulson held about 800,000 shares of Goldcorp at the end of 2018.

Newmont’s offer was made just months after Goldcorp shares hit their lowest level since 2002.

The tie-up was also harshly criticized by Barrick during a hostile bid for Newmont in the past month, which has since been withdrawn in favor of the joint venture between the two companies. Barrick CEO Mark Bristow said he didn’t believe the Newmont-Goldcorp combination created any value and called Goldcorp’s assets “less than attractive.”

Under the current terms, Newmont would create more value by not merging, once the joint venture with Barrick is created, Paulson said. It also flagged “remarkably” divergent fourth-quarter results for both Newmont and Goldcorp, announced after the merger. The premium is “unjustified” given Vancouver-based Goldcorp’s poor performance, the hedge fund said.

“I’m not going to prescribe what the company should or shouldn’t do,” Foster said. “I’m sure Newmont is looking at all the options and I’m sure Newmont wants to do what’s fair for shareholders.”