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All That Glitters…

25 February 2019 by jbchevrel

Despite several deal failures over the past decades, Barrick Gold (ABX) offered an aggressive $17.8B to acquire Newmont Mining Corp (NEM). This follows 2 major developments in that industry, last month: 1/ ABX and Randgold merged to create the biggest worldwide player 2/ NEM had itself bid $10B to acquire Goldcorp. Because ABX’s bid for NEM is at a c8% discount (NEM’s current market cap is $19.4B), NEM stocks fell along with ABX (-1.7%), despite the risk-on mood. NEM CEO unsurprisingly said it would be bad for shareholders, and added that the option to buy ABX was actually on the table. Those developments were taken positively in credit, probably helped by the fact that the ABX-NEM deal would be all-share. The prospect that no cash would be burnt took NEM 5y CDS tighter -12 on day, coming from low 60s to low 40s (this AM) then back to low 50s (now). ABX CDS is little moved (-3bp, roughly in line with IG31 -2.5bp), still in mid 60s. Elsewhere in commodity space, oil did not glitter, after Trump talked crude prices down: "Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile!" That didn’t hurt CDS (US IG, US HY, EM), confirming the non-linearity that applies when WTI is above $55.