Stars aligning for Pretium, as shareholder vote on $3.5-billion acquisition by Australia’s Newcrest nears

The $3.5-billion acquisition of Pretium Resources Inc. PVG-T by Australia’s Newcrest Mining Ltd. NCM-T appears likely to get the nod from investors later this week, with two proxy advisory firms approving the deal, despite earlier grumblings from the Canadian miner’s biggest shareholder.

In November, Pretium agreed to be acquired by Melbourne-based Newcrest in a cash-and-stock deal. Proponents of the transaction point to the sizable 22.5-per-cent premium that Newcrest has on the table, as well as its prowess in underground mining that may allow Pretium to tame what has been a difficult deposit to mine.

Vancouver-based Pretium operates the Brucejack underground gold mine high up in the mountains of British Columbia. While prized for its high-grade gold, Brucejack’s geology has been erratic, with Pretium encountering significant grade and production shortfalls over the years. While problems with the orebody have stabilized under new management, the stock has continued to be volatile, and the average mining grade has been incrementally revised downward at Brucejack.

Before Pretium agreed to a takeover by Newcrest, it signed confidentiality agreements with six other precious metals companies, who subsequently conducted due diligence on a possible takeover. All of the parties ultimately failed to top Newcrest’s offer. Two sources familiar with the talks said that one of the companies that kicked the tires on Pretium was Toronto-based Barrick Gold Corp. The Globe and Mail is not identifying the sources as they were not authorized to speak publicly on the matter.

Mark Bristow, chief executive officer of Barrick, has repeatedly said he wants Barrick to grow its footprint in Canada, where it has only one mine. But Mr. Bristow has also been adamant he does not want to overpay for acquisitions, and he has lambasted premium takeover deals that the industry has made in the past as wasteful and foolhardy. Both Barrick and Pretium declined to comment.

Pretium shareholders will vote on the Newcrest takeover on Thursday, with the threshold for approval being at least two-thirds of votes cast. Shareholders have the option to accept cash for their holdings, or take up shares in Newcrest.

Large investment firms give significant weight to the opinion of proxy advisory firms, and look to them for guidance on which way to vote in takeover transactions.

Glass, Lewis & Co. advised Pretium shareholders to vote for acquisition by Newcrest, and said in a report that the transaction will result in investors gaining exposure to a “larger, more diversified gold producer.”

Another proxy advisory firm, Institutional Shareholder Services, also urged Pretium shareholders to vote for the transaction. ISS said that by accepting shares in Newcrest, Pretium investors may also profit from the Australian miner’s enviable asset base.

Existing Pretium investors would retain their exposure to the Brucejack project, “while becoming exposed to Newcrest’s reliable series of tier one producing mineral assets,” ISS wrote. Accepting the deal would also remove some of the risks inherent to ownership in a single-asset producer, the advisory firm added.

While signs point to Pretium winning approval from its shareholder, the deal hasn’t been without its detractors.

Shortly after the transaction was announced, Joe Foster, portfolio manager with New York-based asset management firm VanEck, the biggest Pretium stakeholder, told The Globe he felt the company was being sold for too cheap a price, particularly in light of a recent promising new gold discovery at Brucejack that could add considerable life to the orebody.

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

Mr. Foster was contacted by The Globe again this week but declined to comment on which way VanEck intended to vote. Letko, Brosseau & Associates, Sprott Asset Management, Jupiter Asset Management and Mackenzie Investments, all of which are major Pretium shareholders, also declined to comment.

Grumbling from a contingent of shareholders ahead of a takeover vote is not uncommon, but history shows that most skeptics tend to fall in line eventually.

When Kirkland Lake Gold Ltd. first proposed buying Detour Lake Gold Ltd. in 2019, several large shareholders at Kirkland griped about the deal being overly risky, and publicly mulled voting against the transaction. But the vote ended up being a landslide, with a 99-per-cent approval rating.

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