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The latest big deal to shake up Canada’s gold industry has the acquirer on the defensive for paying a premium, but at least one money manager is salivating at the prospect of an even higher offer.

Australia’s Newcrest Mining Ltd. faced questions from analysts, and a declining stock price, after it unveiled plans late Monday to acquire Pretium Resources Inc. for $3.5-billion. Melbourne-based Newcrest is offering $18.50 in cash, or 0.8084 Newcrest shares, for each Pretium share.

Unlike many big deals over the past few years, Newcrest is paying a sizable premium of 22.5 per cent for Vancouver-based Pretium, owner of the high grade but challenging-to-mine Brucejack gold mine in British Columbia.

Deals that pay no premium have gained in popularity ever since Barrick Gold Corp. bought Randgold Resources Ltd. in 2018 for US$6-billion. As recently as September, Agnico Eagle Mines Ltd. announced a zero-premium acquisition of Kirkland Lake Gold Ltd. for more than US$13-billion. Both deals were warmly welcomed by investors.

Premium takeover deals, including Kirkland Lake Gold Ltd.’s acquisition of Detour Gold Corp. in 2020 and Fortuna Silver Mines Inc.’s purchase of Roxgold Inc. earlier this year, have proven to be a much tougher sell.

On Tuesday, shares in Newcrest fell by 1.5 per cent on the Australian Securities Exchange after the Pretium takeover was announced, as analysts peppered management with questions about why it was paying a premium, and whether it had full confidence in the geology of Brucejack.

“We’ve done very extensive technical due diligence, particularly on the resource geology, spending a lot of time on-site and a lot of time with the Pretium team over an extensive period of time to really understand what’s going on there,” Seil Song, chief development officer with Newcrest, said in a conference call with analysts.

Since Brucejack went into production in 2017, Pretium has encountered grade shortfalls on several occasions that have led to extreme volatility in its share price. The uniquely erratic nature of the deposit makes it difficult for the company to know where exactly the gold is in the ground, despite extensive exploratory drilling.

Jon Case, a portfolio manager with CI Global Asset Management, said that a cross-section of the Brucejack mine looks as if someone took a shotgun and fired at the deposit.

“The gold seems to be deposited almost at random,” he said. “The nature of the geology makes it very difficult to estimate the total grade, and [to predict] what it’s going to look like on a quarter-by-quarter basis.”

Still, despite the variability, Mr. Case said that Brucejack has proven to be an extremely profitable operation, consistently generating high amounts of free cash flow, even if it’s not quite as spectacular as originally promised. And while it may be impossible for anyone to accurately predict the exact grade and volume of gold the mine will produce in the future, based on past performance, he believes it’s a safe bet Brucejack will continue to spin off lots of cash.

Joe Foster, a portfolio manager with New York-based VanEck, is even more bullish on Pretium. In fact, he thinks the company is being sold for too cheap a price, especially in light of the company recently making a promising new discovery that could add considerable life to the existing orebody.

“I don’t think this offer reflects the potential of the Pretium properties and the solid management,” he said. “I think you can justify a higher price.”

Both CI and VanEck own shares in Pretium.

On Tuesday, shares in Pretium closed at $17.98 a share on the Toronto Stock Exchange, more than 50 cents below the Newcrest offer, suggesting that most investors aren’t expecting a higher bid.

Mr. Case thinks there’s a chance however that Barrick Gold Corp. could come in with a higher offer. Toronto-based Barrick has made no secret of its intention to grow its footprint in Canada, and it has build up considerable tax losses that could be offset against Pretium’s profitable Brucejack operation.

A spokesperson with Barrick Gold wrote in an e-mail to The Globe and Mail that the company doesn’t comment on market speculation.

The global gold sector has been rapidly consolidating over the past few years, as investors push single asset miners, such as Pretium, to find suitors with bigger mine portfolios so as to reduce the overall risk.

Newcrest operates mines in Australia, Papua New Guinea and Canada, and has a market value of US$15.3-billion. The company has been slowly growing its presence in both Canada and in Canadian gold miners. In 2019, Newcrest paid US$806-million for a majority stake in the Red Chris copper and gold mine, which is also located in B.C. It is also the biggest shareholder in Vancouver-based Lundin Gold Inc., operator of the Fruta del Norte gold mine in Ecuador.

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