Gold Mining ETFs Heat Up On M&A Buzz

The gold mining space has been heating up with three-way fight between the world’s largest gold companies. This is especially true as Newmont Mining Corp (NYSE:NEM) rejected an all-stock merger proposed by Canada’s Barrick Gold (NYSE:GOLD) and reiterated its intention to move forward with the planned smaller U.S. rival Goldcorp (NYSE:GG) merger (see: all the Materials ETFs here).

Proposed Barrick Gold Deal

Barrick Gold, the world's largest gold producer, offered to buy U.S. rival Newmont for nearly $18 billion in all-stock transaction. Under the proposed deal, Newmont shareholders would receive 2.5694 Barrick shares per Newmont share. Barrick shareholders will own roughly 55.9% and Newmont shareholders will own around 44.1% of the combined entity.

The combination will create the world's best gold company, with the largest portfolio of Tier One gold assets and would unlock more than $7 billion net present value (pre-tax) of real synergies. The proposed deal was contingent upon the company scrapping its merger with Goldcorp.

Barrick president and CEO Mark Bristow said the deal to be beneficial for shareholders of both companies and far superior than the Newmont’s proposed acquisition of Goldcorp. He estimated the proposed deal will produce annual synergies 7.5 times larger than the projected annual synergies for the Newmont/Goldcorp transaction.

The proposal comes within a month after the world’s largest miner completed its buyout of Randgold Resources (LON:RRS) for $6.1 billion in an all-stock deal (read: Barrick Gold to Acquire Randgold: ETFs Set to Shine).

Recap of Newmont-Goldcorp Deal

Newmont plans to acquire its smaller rival Goldcorp for $10 billion that will create the world’s largest U.S. gold producer, overtaking Barrick Gold. The transaction represents the biggest ever acquisition in the gold sector. Under the terms of the deal, Newmont has offered 0.3280 of its shares and a couple of cents for each Goldcorp share. Newmont shareholders will own roughly 65% and Goldcorp shareholders will own around 35% of the combined entity.

The transaction will result in annual savings of $100 million, and is expected to be immediately accretive to Newmont's net asset value and cash flow per share. The deal is expected to close in the second quarter of 2019 and is subject to approval from shareholders of both companies as well as regulators in Europe, Canada, South Korea and Mexico (read: Newmont-Goldcorp Deal Puts Gold Mining ETFs in Focus).

ETF in Focus

The M&A buzz has put the spotlight on gold mining ETFs. Below, we have highlighted couple of them that have the three gold mining companies among their top five holdings and are likely to be the big movers in the weeks ahead.

VanEck Vectors Gold Mining ETF (V:GDX)

This is the most popular and actively traded gold miner ETF with AUM of $10.9 billion and average daily volume of around 48.3 million shares. The fund follows the NYSE Arca Gold Miners Index, holding 45 stocks in its basket. Barrick Gold and Newmont occupy the top two positions with 11.2% and 8.2% share, respectively, while Goldcorp takes the seventh spot with 4.8% allocation. Canadian firms account for more than half of the portfolio while Australia (17.2%) and the United States (14.3%) round off the top three. The fund charges 53 basis points (bps) in annual fees.

iShares MSCI Global Gold Miners ETF (OL:RING)

This ETF tracks the MSCI ACWI Select Gold Miners Investable Market Index and holds 35 securities in its portfolio. Barrick Gold and Newmont occupy the top two positions with more than 14% share each while Goldcorp takes the fourth spot with 6.5% share. Canadian firms take more than half of the portfolio, while United States and Australia round out the top three with a double-digit exposure each. RING is the cheapest choice in the gold mining space, charging 39 bps in fees and expenses. The fund has been able to manage assets worth $218.7 million and trades in good volume of 281,000 shares per day (read: Gold Mining ETFs are Hot Now: Will This Continue?).

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