Newmont Corp. has made a $17 billion offer to acquire Australia’s Newcrest Mining Ltd, with the goal of completing one of the largest deals for a global gold miner as the industry faces challenges in making large new discoveries of the precious metal.

Newmont, based in Colorado and one of the world’s largest gold producers, submitted a conditional and non-binding proposal to acquire Newcrest, Australia’s largest listed gold producer. Newmont stated it would offer 0.380 of its own shares for each Newcrest share held.

This offer comes after an earlier approach by the US company which valued each Newcrest share at 0.363 Newmont shares. Newcrest’s directors rejected that proposal as being too low. On Monday, Newcrest announced it would consider the terms of the latest offer.

Newmont’s proposal highlights the efforts of gold producers to secure their reserves, reduce expenses, and increase returns for shareholders. In 2019, Newmont acquired Canadian gold miner Goldcorp Inc. for $10 billion. That same year, Newmont and competitor Barrick Gold Corp. formed a joint venture in Nevada to lower costs, after Barrick’s initial offer to buy Newmont was declined.

Newmont stated that the two companies are complementary and that a merged entity, with 30% ownership by Newcrest shareholders and 70% by Newmont, could “set the standard for sustainable and responsible gold mining.” Newcrest operates mines in Australia, Canada, and Papua New Guinea.

“We believe that a combination of Newmont and Newcrest presents a strong value proposition for our respective shareholders, workforce, and the communities in which we operate,” Newmont CEO Tom Palmer said in a statement.

A major shareholder in Newcrest would be surprised if a deal were to proceed as currently proposed, according to The Wall Street Journal. The chief investment officer of Allan Gray Australia, Simon Mawhinney, reportedly indicated that an all-stock offer makes sense, but that the ratio, as it stands, does not look fair given Newcrest’s low-cost and long-life assets. 

Allan Gray and its sister company Orbis reportedly held a combined 7.4% of Newcrest’s stock at the end of December, according to the miner’s quarterly report. Mawhinney is quoted as saying that Newmont must think that, at the current offer, they are buying something cheap, but that there is still a long way to go.

Analysts believe that Newmont is attracted to Newcrest’s extensive network of low-cost mines, which are some of the largest in the world. The company’s assets have a long lifespan, with some expected to last for 22 years, significantly longer than many of its listed competitors, as noted by analysts at Barrenjoey, an Australian investment bank. Newcrest also has plans to expand some of its operations.

The offer could also attract bids from other competitors. Jefferies, an investment bank, noted in a client note that the proposal is just the opening salvo and there may be other bidders who will enter the market as a result.

Gold is found in the Earth’s crust in much smaller quantities compared to many other commonly mined materials. According to the World Gold Council, all the gold ever mined could fit in a 22-meter cube.

The search for new gold deposits has been challenging for miners in recent years as many low-risk mines have depleted their easily accessible gold and exploration campaigns have produced limited large deposits. Out of the 341 major gold deposits discovered between 1990 and 2021, only 28 were discovered in the last decade and contained only 6% of the total gold discovered since 1990, according to S&P Global Market Intelligence. Furthermore, the mining industry is facing higher costs, such as rising wages and increased energy prices.

Newmont’s offer arrives during a time of change for Newcrest, which announced in December that CEO Sandeep Biswas would step down after 8 years. The company named CFO Sherry Duhe as interim CEO as it searches for Biswas’ replacement.

For the year ending June, Newcrest projects to produce between 2.1 million to 2.4 million ounces of gold. Additionally, it also produces copper, which is an in-demand industrial metal due to its use in electric vehicles and renewable energy infrastructure. Newcrest predicts to produce up to 155,000 metric tons of copper for this fiscal year.

In recent months, gold prices have risen due to the belief that an economic slowdown will cause the Federal Reserve to decrease the rate of interest hikes, making gold more attractive to investors. As gold does not provide any yield, higher interest rates usually decrease its demand.

Newcrest has announced that the all-stock proposal from Newmont is worth 27.16 AUD per share, roughly equivalent to $18.80, implying an offer price. This represents a 21% premium compared to its closing price on February 3rd. On Monday, shares of Newcrest closed 9.3% higher in Sydney at 24.53 AUD.