Australian gold miner Lihir Gold Ltd. is on the block after it received a US$8.45-billion hostile bid from Newcrest Mining Ltd. According to Scotia Capital analyst David Christie, Newmont Mining Corp. should now look to acquire Lihir.
In a note to clients, Mr. Christie wrote that Lihir could immediately increase Newmont's production by 9%, and drop equity cash costs by 2%. That would bring Newmont's cash costs below US$500 an ounce.
"In our view, the Lihir mine would be a good fit for Newmont's Australia-Asia operating group, and [Lihir's] Bonikro mine and vast exploration ground would fit well into Newmont's African operating unit," he wrote.
Newmont needs to consider acquisitions because it has a negative growth profile. Mr. Christie wrote that production is expected to decline by 8.7% in 2015 compared to 2010. However, the company is also in a good position for M&A activity with US$5.8-billion in available liquidity, he noted.
Mr. Christie initiated coverage on Newmont with a "sector perform" rating and a one-year target price of US$67.00 a share. He wrote that Newmont trades at a price-to-net-asset-value multiple of 1.98 times, which is well ahead of its large-cap gold peers at 1.49 times. However, Newmont is cheaper than its rivals on other metrics.