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Newmont-Goldcorp Deal Puts Gold Mining ETFs in Focus

Like other sectors, gold mining space is also consolidating as miners are competing amid dwindling supply of easy-to-find gold. The latest to jump on the bandwagon is Newmont Mining Corp NEM, which intends to acquire smaller rival Goldcorp Inc GG for $10 billion or $12.5 billion including debt. The transaction represents the biggest ever acquisition in the gold sector.

The moves comes nearly four months after gold mining giant Barrick Gold GOLD agreed to buy Randgold Resources Ltd for $6.1 billion in an all-stock deal (read: Barrick Gold to Acquire Randgold: ETFs Set to Shine).

Inside The Deal

Under the terms of the deal, Newmont has offered 0.3280 of its shares and a couple of cents for each Goldcorp share. This translates to $11.46 per share, a premium of about 18% to Goldcorp's closing price as of Jan 11. Newmont shareholders will own roughly 65% and Goldcorp shareholders will own around 35% of the combined entity.

The combination will create the world’s largest U.S. gold producer, overtaking Barrick Gold, with an unmatched portfolio of operations, projects, exploration opportunities, reserves and people in the gold mining sector. The combined company will be called Newmont Goldcorp and will be headquartered in Denver. It targets to produce 6-7 million ounces of gold annually over the next 10 years and beyond. It will manage the post-merger business’ mines in the United States and Canada. Additionally, the new company will offer the highest annual dividend among leading gold producers (read: 5 Market-Beating Dividend ETFs of 2018).

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 and is subject to approval from shareholders of both companies as well as regulators in Europe, Canada, South Korea and Mexico.

ETF Impact

The announced merger has put the spotlight on gold mining ETFs that could be the best ways for investors to tap the opportunity arising from the NEM-GG deal (see: all the Materials ETFs here).

Sprott Gold Miners ETF SGDM

This fund follows the Sprott Zacks Gold Miners Index, holding 27 stocks in its basket. Goldcorp occupies the third position with 11.4% allocation. The product is skewed toward mid-caps at 75% while the rest goes to small caps with just 4% in large caps. Here, Canada takes the top spot at 68.5% followed by 15.1% in the United States. The fund has amassed $136.9 million in its asset base and trades in a good volume of around 46,000 shares a day. It charges 57 bps in annual fees from investors.

iShares MSCI Global Gold Miners ETF RING

This ETF tracks the MSCI ACWI Select Gold Miners Investable Market Index and holds 37 securities in its portfolio. Newmont takes the top spot at 13.5% while Goldcorp occupies the fourth position with 6.7% 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 $175.8 million and trades in good volume of 264,000 shares per day (read: Gold Mining Crushing the Market: Best ETFs & Stocks of Q4).

Market Vectors Gold Mining ETF GDX

This is the most-popular and actively traded gold miner ETF with AUM of $10.5 billion and average daily volume of around 48.2 million shares. The fund follows the NYSE Arca Gold Miners Index, holding 46 stocks in its basket. Newmont is the top firm making up for 8.9% of assets while Goldcorp takes the eight spot at 4.6% share. Canadian firms account for 54.5% of the portfolio, while Australia (16.8%) and the United States (15.2%) round off the top three. The fund charges 53 bps in annual fees.

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