Federal Court of Australia

Newcrest Mining Limited, in the matter of Newcrest Mining Limited [2023] FCA 1080

ORDERS

OTHER MATTERS:

A.    The Court notes that the Australian Securities and Investments Commission was provided with at least 14 days’ notice of the hearing of this application.

B.    The Court is satisfied that ASIC has had a reasonable opportunity to:

(a)    examine the terms of the proposed scheme of arrangement to which the application relates and a draft explanatory statement relating to that arrangement; and

(b)    make submissions to the Court in relation to the proposed scheme of arrangement and the draft explanatory statement.

C.    The Court notes the letter from ASIC to the directors of the Plaintiff dated 6 September 2023 produced at the hearing.

THE COURT ORDERS THAT:

1.    Pursuant to subsection 411(1) and section 1319 of the Corporations Act 2001 (Cth) (the Act) the Plaintiff (Newcrest) convene and hold a meeting (Scheme Meeting) of its members holding fully paid ordinary shares (Newcrest Shareholders):

(a)    for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement (Scheme) proposed to be entered into between Newcrest and the Newcrest Shareholders, the terms of which are set out in Annexure A to these orders; and

(b)    to be held on 13 October 2023 commencing at 10:30 am (Melbourne time) and to be conducted both in-person at the RACV City Club, 501 Bourke Street, Melbourne, Victoria 3000 and virtually via an online platform.

2.    Peter Tomsett, or failing him, Vickki McFadden, be chairperson of the Scheme Meeting.

3.    Voting on the resolution to agree to the Scheme is to be conducted by way of a poll.

4.    Pursuant to subsection 411(1) and section 1319 of the Act, the Scheme Meeting be convened by sending on or before 14 September 2023 to each Newcrest Shareholder:

(a)    in the case of Newcrest Shareholders who have elected to receive shareholder communications electronically (Email Shareholders), an email which includes access by an embedded link to an online portal or website where Email Shareholders may:

(i)    access and download an electronic copy of a document substantially in the form which appears at Tab 3 of Exhibit CLH-1 to the affidavit of Claire Louise Hannon sworn on 6 September 2023 (Scheme Booklet);

(ii)    access and download an electronic copy of the ‘Online Voting Guide’;

(iii) lodge their proxy for the Scheme Meeting and voting instructions online; and

(iv)    access the online platform to listen to and participate in the Scheme Meeting;

(b)    in the case of Newcrest Shareholders who have elected to receive hard copy communications (Electing Postal Shareholders) and whose registered address is in Australia, the following documents by pre-paid post addressed to the relevant addresses recorded in Newcrest’s register:

(i)    a printed copy of the Scheme Booklet;

(ii)    a personalised Proxy Form; and

(iii)    a reply-paid envelope for the return of that Newcrest Shareholder’s Proxy Form;

(c)    in the case of Newcrest Shareholders who have not elected to receive electronic or hard copy communications (Non Electing Postal Shareholders) and whose registered address is in Australia, a letter in respect of the Scheme Meeting by pre-paid post addressed to the relevant addresses recorded in Newcrest’s register of members (Non Electing Postal Shareholder Letter), which contains the address of a website which enables Non Electing Postal Shareholders to:

(i)    access and download an electronic copy of the Scheme Booklet;

(ii)    access and download an electronic copy of the ‘Online Voting Guide’;

(iii) lodge their proxy for the Scheme Meeting and voting instructions online; and

(iv)    access the online platform to listen to and participate in the Scheme Meeting; and

(d)    in the case of Electing Postal Shareholders and Non Electing Postal Shareholders whose registered address is outside Australia, the following documents by pre-paid airmail post addressed to the relevant addresses recorded in Newcrest’s register of members:

(i)    for Non Electing Postal Shareholders, a Non Electing Postal Shareholder Letter;

(ii)    for Electing Postal Shareholders, a printed copy of the Scheme Booklet, a personalised Proxy Form and a reply-paid envelope for the return of that Newcrest Shareholder’s Proxy Form.

(e)    in the case of Newcrest Shareholders on the Canadian Register, a physical Notice of Access letter to their registered address on the Canadian Register accompanied by a Proxy and Voting Form, unless they have made (or do make) an election for documents to be sent to them in either physical or electronic form in which case they are to be sent the material specified in sub-paragraph (a) or sub-paragraph (b) (as the case may be).

5.    A proxy in respect of the Scheme Meeting will be valid and effective if, and only if, it is completed and delivered in accordance with its terms or a proxy is lodged online in accordance with the instructions on the online portal or website referred to in orders 4(a) and (c) and received by Newcrest by 10.30 am (Melbourne time) on 11 October 2023.

6.    Subject to these orders, Newcrest shall have power to postpone the Scheme Meeting to such time, date and place as it considers appropriate and, in that event, notwithstanding any other part of these orders:

(a)    only Newcrest Shareholders whose names are recorded in the register of members of Newcrest at 7:00 pm (Melbourne time) on the date that is two calendar days before the date of the postponed meeting will be eligible to vote at the Scheme Meeting;

(b)    a proxy in respect of the Scheme Meeting will be valid and effective if a Proxy Form is completed and delivered in accordance with its terms or a proxy is lodged online in accordance with the instructions set out in orders 4(a) and (c) at least 48 hours before the time scheduled for the postponed meeting;

(c)    and a reference in these orders to the Scheme Meeting is taken to include a reference to the postponed meeting.

7.    Pursuant to r 1.3 of the Federal Court (Corporations) Rules 2000 (Cth), compliance with rr 2.15, 3.2(b)(ii), 3.4 and Form 6 is dispensed with.

8.    By no later than 10 October 2023 Newcrest is to publish an announcement via the ASX Market Announcements Platform which sets out the details for the second court hearing and the process for any person wishing to appear at that hearing to oppose the approval of the Scheme, together with an address for service of Newcrest.

9.    The proceedings be adjourned to 10:15 am (Melbourne time) on 17 October 2023 before Justice Beach for the hearing of any application to approve the Scheme.

10.    Newcrest be granted liberty to apply.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Annexure A

Scheme of Arrangement

[The order entered is available on the Commonwealth Courts Portal, which attaches the Scheme]

REASONS FOR JUDGMENT

BEACH J:

1    Newcrest Mining Limited has applied for orders under s 411(1) of the Corporations Act 2001 (Cth) to convene and hold a meeting of its shareholders to consider a proposed scheme of arrangement (the Scheme).

2    The commercial purpose of the Scheme is to effect the acquisition of all the issued shares in Newcrest, an ASX-listed Australian public company limited by shares and registered in Victoria, Australia, by Newmont Corporation through a wholly-owned subsidiary. The material before me suggests that the merged group will have on a pro forma basis a market capitalisation of AUD 70.2 billion.

3    Newmont is a leading global gold company and also a producer of copper, silver, lead and zinc. It is a Delaware corporation headquartered in Denver, Colorado, with offices in the United States, Australia, Canada, and Ghana. Newmont’s common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. As at 30 June 2023, Newmont’s consolidated total assets were USD 38.133 billion and its total equity was USD 19.415 billion.

4    Newcrest is one of the largest gold mining companies globally by production and the largest gold producer listed on the ASX by market capitalisation. In addition to gold, Newcrest also produces copper, silver and molybdenum as by-products. As at 30 June 2023, Newcrest’s consolidated total assets were AUD 17.521 billion and its total equity was AUD 11.712 billion.

5    If the Scheme is implemented, 100% of Newcrest’s shares will be acquired by Newmont’s wholly-owned subsidiary, Newmont Overseas Holdings Pty Ltd (NOH), which is an Australian proprietary company limited by shares that was incorporated for the purposes of acquiring and holding all of Newcrest’s shares if the Scheme is implemented. Presently, NOH does not conduct any business and does not currently own any material assets or have any material liabilities.

6    Under the Scheme, all of the Scheme shares will be transferred to NOH, and in consideration for the transfer each Scheme shareholder will be entitled to receive 0.400 Newmont securities for each Scheme share held. The form of Newmont securities to be issued to the Scheme shareholders differs depending upon where the Scheme shares are registered.

7    First, Scheme shareholders who hold Scheme shares on that part of Newcrest’s share register maintained in Canada will receive new Newmont shares.

8    Second, Scheme shareholders who hold Scheme shares on that part of Newcrest’s share register maintained in Australia will receive Newmont CDIs. A CHESS depositary interest (CDI) is a unit of beneficial ownership in a Newmont share registered in the name of CHESS Depositary Nominees Pty Ltd in accordance with the ASX Settlement Rules. Newmont CDIs are to be quoted and will be able to be traded on the ASX.

9    Third, Scheme shareholders who hold Scheme shares on that part of Newcrest’s share register maintained in Papua New Guinea will receive Newmont PDIs. A PETS depositary interest (PDI) is a unit of beneficial ownership in a Newmont share registered in the name of the depositary nominee appointed under the PNGSX Business Rules in accordance with the PNGSX Business Rules. Newmont PDIs are to be quoted and will be able to be traded on the PNGSX.

10    In addition, Newcrest expects to pay a franked special dividend of $1.10 per Newcrest share held on the special dividend record date, which is expected to be 7pm on 19 October 2023, subject to the Scheme becoming effective. It is convenient to note here that if such a dividend is declared and paid, in my view it would not constitute the giving of financial assistance for the purposes of s 260A of the Act as I have previously discussed in analogous cases.

11    Upon implementation of the Scheme, Newcrest will become an indirect wholly-owned subsidiary of Newmont, and the former Newcrest shareholders are expected to own approximately 31% of Newmont.

12    The parties’ obligations in relation to the Scheme are set out in a Scheme Implementation Deed (SID) dated 15 May 2023, as amended on 4 September 2023, which annexes a copy of the proposed Scheme between Newcrest and the Scheme shareholders and a draft deed poll to be given by Newmont and NOH in favour of Scheme shareholders. I should say here that the SID contains provisions for a break fee and a reverse break fee, both of which are within the usual parameters and require no further comment from me. Further, the exclusivity provisions with the usual fiduciary carve-outs are unexceptionable.

13    The directors of Newcrest unanimously recommend that Newcrest shareholders vote in favour of the Scheme, and intend to vote any Newcrest shares held or controlled by them in favour of the Scheme.

14    An independent expert report has been prepared by Grant Samuel & Associates Pty Limited. In the expert report, Grant Samuel concludes that the Scheme is in the best interests of Newcrest shareholders, in the absence of a superior proposal.

15    Newcrest has prepared a draft scheme booklet which it intends to dispatch to shareholders. The booklet sets out a detailed description of the Scheme and its advantages and disadvantages, and it includes the explanatory statement required by s 411(2)(b)(i) and s 412(1) of the Act. It sets out the reasons for the Newcrest directors’ recommendation that shareholders vote in favour of the Scheme, and it summarises the conclusions of Grant Samuel in relation to the Scheme. It contains a number of annexures, including a copy of the expert report, the Scheme and a notice of meeting.

16    On 6 September 2023 Newcrest received a preliminary no-objection letter from ASIC.

17    In my view it is appropriate to make orders convening the Scheme meeting, as the proposed Scheme is of such a nature that it would likely be approved at the second court hearing.

18    In Re Vita Group Ltd (2023) 165 ACSR 576, Jackman J set out a modified approach to the evidence to be filed when orders are sought under ss 411(1) and (4) of the Act concerning members’ schemes of arrangement. I adopted aspects of his incisive suggestions for the purposes of the second court hearing involving the Oz Minerals scheme. And I have adopted his approach more generally for the purposes of the present matter.

19    Let me add one other point. Much earlier this year, a process was set in train by other members of the Court which was calculated to suggest that yet another prosaic practice note might need to be promulgated to reflect what I would describe as the Jackman blueprint. There is of course no current practice note tailored to the practices and procedures concerning members’ or creditors’ schemes of arrangement.

20    For my part, no cookie-cutter procedures practice note is necessary in this niche area of commercial law, where practitioners are highly skilled and where judicial requirements for applications and evidence demand and prize flexibility. Moreover, the need for any variance is efficiently addressed and communicated as between judges and as between the judiciary and the profession. Whatever one might think about the perceived advantages of pleonastic managerial-style yet effete practice notes in other areas, they have little merit in specialised areas of commercial law involving low volume complex cases.

Key aspects of the scheme

21    The Scheme and the SID are both subject to a number of conditions precedent, including that Newcrest shareholders vote in favour of the Scheme, Newmont stockholders approve the issue of new Newmont shares pursuant to the Scheme, and the Court approves the Scheme at the second court hearing.

22    As to the second of these conditions precedent, I was advised at the hearing that a meeting of Newmont stockholders would be held before the Scheme meeting as contemplated by clause 3.4(j) of the SID which provided for such a stockholder meeting to be held at least 24 hours, but not more than 48 hours, before the Scheme meeting. So, Newcrest shareholders will know when the Scheme meeting takes place as to whether this condition precedent has been satisfied.

23    If the Scheme is to proceed, all conditions precedent other than Court approval must be either satisfied or waived by the applicable time, which for most conditions is 8.00am on the date on which the application for approval comes before me.

24    If the Scheme becomes effective as anticipated, the Scheme consideration will be issued to Scheme shareholders on the implementation date, and the Scheme shares will subsequently be transferred to NOH on that date.

25    Following the implementation of the Scheme, Newcrest will become an indirect wholly-owned subsidiary of Newmont, and the former Newcrest shareholders are expected to own approximately 31% of Newmont.

26    As to the mechanism for the issue of the Scheme consideration to Scheme shareholders and the transfer of the Scheme shares to NOH, the following actions are to occur in the following sequence on the implementation date.

27    First, NOH must provide or procure the provision of the Scheme consideration to Scheme shareholders. The Scheme consideration is to be provided by the issue by Newmont of new Newmont shares, new Newmont CDIs or new Newmont PDIs (as applicable) to each Scheme shareholder in accordance with the provisions set out in the Scheme or to the sale agent in the case of Scheme shareholders who are ineligible foreign shareholders; I should say now that the treatment under the Scheme of ineligible foreign shareholders is standard and requires no further comment.

28    Second, subject to the provision of the Scheme consideration to Scheme shareholders, the Scheme shares must be transferred to NOH.

Relevant principles

29    The principles which apply at the present stage are well known. In Re RXP Services Ltd [2021] FCA 38 I said (at [18]):

Now as I have said on more than one occasion, my function on an application to order the convening of a meeting is supervisory. At this stage I should generally confine myself to ensuring that certain procedural and substantive requirements have been met including dealing with adequate disclosure, but with limited consideration of issues of fairness. But having said that, it is appropriate to consider the merits or fairness of a proposed scheme at the convening hearing if the issue is such as would unquestionably lead to a refusal to approve a proposed scheme at the approval hearing, that is, the proposed scheme appears now to be on its face “so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further” (Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [44] per French J).

30    The question whether or not to accept particular consideration for shares is quintessentially a commercial matter for the members to assess, and they ought not be prevented from having the opportunity to do so, provided that I can be satisfied that they are acting on sufficient information and with time to consider what they are voting on (see Re Oz Minerals Limited [2023] FCA 197 at [14] and [15] and Re Amcor Limited [2019] FCA 346 at [47] to [50]). Therefore, if the arrangement is one that seems fit for consideration by the meeting of members, and is a commercial proposition likely to gain my later approval if passed by the necessary majorities, then orders should be made to convene the meeting.

31    Now my task at this stage is to assess, first, whether the statutory prerequisites to the making of orders convening a meeting have been met and, second, whether it is appropriate to exercise my discretion in favour of making those orders.

32    I am satisfied as to the first matter and need say nothing further. Let me turn to the second matter.

Discretion

33    The relevant discretionary considerations involve considering, first, whether the Scheme is fit for consideration by the members and, second, whether the members are to be properly informed as to the nature of the Scheme.

Is the Scheme fit for consideration?

34    In my view the Scheme is fit for consideration by its members. The Scheme is of such a nature and cast in such terms that, if agreed to at the Scheme meeting, I would be likely to approve the Scheme at the second court hearing. Further, there is no issue arising from the Scheme which would unquestionably lead to a refusal to approve the Scheme at the approval hearing. Further, it cannot be said that the Scheme is on its face “so blatantly unfair or otherwise inappropriate that it should be stopped in its tracks before going any further” (Re Foundation Healthcare Ltd (2002) 42 ACSR 252 at [44] per French J).

35    Now in this case, Newcrest has raised particular features of the Scheme for my attention being performance risk, the opinion of Grant Samuel, and the treatment of Newcrest equity incentives. Let me discuss each of these in turn. But before doing so I should note that there are other features of the Scheme which are commonly found in acquisition schemes of the present kind that do not raise any particular issues and on which I do not need to linger.

36    Let me begin with performance risk on which something should be said given the size of this proposed transaction.

37    Under the Scheme, Newmont and NOH are required to provide or procure the Scheme consideration to Scheme shareholders or the sale agent. However, neither Newmont nor NOH is a party to the Scheme. So, their obligations cannot be directly enforced by Newcrest shareholders under the Scheme. As such, it is important that they are bound to perform the actions attributed to them under the Scheme and that their obligations are able to be enforced.

38    Now the Scheme effectively eliminates any performance risk by adopting the following accepted safeguards.

39    First, no obligation arises for Scheme shareholders to transfer the Scheme shares unless and until they have been provided with the Scheme consideration. This effectively removes any performance risk in so far as the transfer of Scheme shares is concerned.

40    Second, clauses 5.3(g) and 5.4(c) of the SID impose obligations on Newmont and NOH respectively to perform their obligations under the Scheme and the Deed Poll in relation to the provision of the Scheme consideration.

41    Third, as required by the SID, Newmont and NOH have executed a Deed Poll and delivered it to Newcrest. Under the terms of the Deed Poll, Newmont and NOH undertake in favour of each Scheme shareholder to procure that each Scheme shareholder is provided the Scheme consideration to which they are entitled under the Scheme, in accordance with the terms of the Scheme and subject to the Scheme becoming effective. Now Newcrest has not provided any evidence concerning foreign law advice in relation to the execution and enforceability of the Deed Poll as against Newmont and NOH. But for the reasons advanced by Jackman J in Re Blackmores Ltd [2023] FCA 624 at [15] to [22], I consider that such evidence is unnecessary. And this is particularly so given that the Deed Poll is governed by the law of Victoria, and Newmont and NOH have submitted to the non-exclusive jurisdiction of courts exercising jurisdiction in Victoria. Further, I note that the Deed Poll may be relied upon and enforced by any Scheme shareholder. And in that respect, under the Deed Poll each Scheme participant appoints Newcrest as its agent to enforce the Deed Poll against Newmont and NOH.

42    Let me turn to the next matter concerning the commercial appraisal of the Scheme by the independent expert which has an unusual feature.

43    The opinion of Grant Samuel is that the Scheme is not fair, but that it is reasonable and in the best interests of Newcrest shareholders in the absence of a superior proposal. In summary, Grant Samuel has valued Newcrest’s shares in the range of $18.64 to $21.13 per share, and the value of the Scheme consideration and special dividend, which is in total the consideration, to be $17.10 to $18.70 per Newcrest share. Grant Samuel has stated:

The assessed value of the consideration under the Newmont Transaction of $17.10-18.70 per Newcrest share overlaps Grant Samuel’s estimate of the full underlying value of Newcrest of $18.64 - 21.13 per share but only marginally. While it could be argued that any amount of overlap results in a transaction being “fair”, in Grant Samuel’s view, the extent of the overlap in this case is insufficient to meet the requirements for the Newmont Transaction to be “fair” in terms of ASIC’s regulatory guidelines particularly as Newmont’s Latest Share Price ($[39.46]) represents consideration of only $[16.88] per Newcrest share.

44    Now in order to understand the interaction between the concepts of “fair” and “reasonable”, I should note the following.

45    Where an expert report is obtained and provided to shareholders, by operation of regulation 5.1.01 and cl 8303 of Sch 8 to the Corporations Regulations 2001 (Cth), the report is required to set out an opinion on whether or not the scheme is in “the best interests of the members of the company” and the reasons for that opinion. Now the ASIC Regulatory Guide 111: Content of expert reports in essence says that this opinion should be prepared on the following bases. The expert should consider and provide an opinion on whether the transaction is “fair”, and whether it is “reasonable”. But these are distinct criteria as I will explain in a moment. Now if the expert concludes that the proposal is both “fair and reasonable”, the expert will also be able to conclude that the scheme is in the best interests of the members of the company. But what if the proposal is not fair but it is reasonable? Can this be in the best interests of members of the company?

46    Now an offer is “fair” if the value of the consideration is equal to or greater than the value of the securities the subject of the offer.

47    And an offer is “reasonable” if it is fair. But it might also be “reasonable” if, despite not being “fair”, the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid.

48    Moreover, if the expert concludes that the proposal is “not fair but reasonable”, it is still open to the expert to also conclude that the scheme is “in the best interests of the members of the company”.

49    But an expert concluding that an offer is not fair, but reasonable, must explain the meaning of this opinion, why the expert has reached this conclusion and the significance of the conclusion to the decision to be made by security holders. The expert report in the present case complies with these requirements.

50    Now as to fairness, Grant Samuel explained:

In evaluating the fairness of the Newmont Transaction, it needs to be recognised that the bottom of the valuation range for Newcrest (i.e. $18.64) represents the relevant threshold for fairness. Usually (and particularly for a cash offer), the value of the consideration would only need to be above the bottom end of the valuation range for the transaction to be “fair”.

However, the Newmont Transaction is predominantly a scrip transaction and Grant Samuel’s assessment of the value of the consideration is based on a range of trading values for Newmont shares…...

There is no formal rule about the extent of overlap required between the valuation of the target company and the assessed value of the consideration for an offer to be regarded as “fair”. There have been cases where the slightest overlap has been regarded as sufficient to meet the fairness criteria.

On the other hand:

•    the overlap is minimal;

•    despite the overlap of the ranges the reality is that, at Newmont’s Latest Share Price of $[39.46], the consideration has a value of $[16.88] per Newcrest share, $[1.76] or [9]% below the bottom end of the estimated underlying value range of $18.64…;

•    a Newmont share price of $43.85 is required to equate to the bottom of the value range. Other than for a brief period prior to the announcement of its 2Q23 results, Newmont shares have not traded above this level since mid-May 2023; and

•    it is not necessarily appropriate to compare the top of the assessed value of the consideration range with the bottom of the estimated underlying value range as they arguably reflect different commodity price scenarios.

In Grant Samuel’s view, the Newmont Transaction does not meet the requirements to be “fair” in terms of ASIC’s regulatory guidelines. Newcrest shareholders will not receive full underlying value under the Newmont Transaction.

However, both the valuation of Newcrest and the assessment of the market value of the Scheme consideration are subject to material uncertainty. Shareholders could reasonably reach different conclusions based on the same information.

•    However, there are good reasons to conclude that the analysis set out above provides, at best, an incomplete assessment of the Newmont Transaction, given its scrip nature and the overall volatility in market values across the gold sector in recent months.

51    Moreover, in terms of the reference to market volatility and the impact that had on the opinion formed by Grant Samuel, it was explained:

Assessment of the Newmont Transaction is not straightforward. Even at the best of times valuation of Newcrest is subject to considerable uncertainty and involves a high level of subjective judgement, particularly in relation to development projects and/or assets with sovereign risk. The challenges are exacerbated when the valuation is at a “point in time” but the market pricing of gold equities (which reflect key drivers such as gold price, operating costs and cost of equity, albeit in an indeterminable manner) has been highly volatile over the last few months. A wide range of valuation conclusions could credibly be reached. Accordingly, fundamental valuation analysis should be treated with caution. Other considerations such as market based measures of relative contribution of Newcrest to the Merged Group and other factors are also useful and relevant. The assessment of the Newmont Transaction is an overall conclusion having regard to all of these considerations.

…

Assessment of the consideration is based on the “cash equivalent” value of the Scheme consideration offered by Newmont. The value of the consideration was $21.54 per Newcrest share based on the Newmont closing share price on the day prior to announcement of the Further Revised Proposal (of $51.09) and $19.48 per Newcrest share based on the Newmont closing share price on the day prior to announcement of the Newmont Transaction (of $45.94) and was, on both of these dates, demonstrably “fair”.

However, Grant Samuel’s opinion is directed to the issue of whether or not Newcrest shareholders are receiving fair value for their shares today. The Newmont share price has declined substantially since announcement of the Further Revised Proposal in April 2023, falling from $51.09 to current prices of around $[40] (a decline of over [20]%). On the basis of recent trading on the NYSE and various other factors, Grant Samuel has adopted a Newmont share price trading range of $40.00-44.00. The width of the range reflects the recent volatility in Newmont’s share price and while it is above the Latest Share Price ($[39.46]), it is in line with recent trading. Accordingly, Grant Samuel has assessed the value of the consideration under the Newmont Transaction to be $17.10-18.70 per Newcrest share.

52    Further, Grant Samuel explained:

… A shareholder could validly take the view that:

•    the transaction could be viewed as a merger;

•    the Further Revised Proposal was demonstrably fair when it was announced on 10 April 2023 (new York time). One perspective is that if the Newmont Transaction was a “good deal” when it was first announced in April 2023 it is still likely to be a good deal now….; and

•    Grant Samuel’s valuation of Newcrest is at a point in time and is a subjective view of value. In contrast, the sharemarket provides an unbiased view of value that represents a consensus of thousands of market participants. ……

In a broader sense, the Newmont Transaction enables Newcrest shareholders to retain their direct exposure to the gold sector by “rolling up” their investment into a larger, more diversified company (the world’s largest gold miner), while capturing a meaningful premium (through the uplift in their share of the Merged Group) in the process, as well as benefitting from a higher dividend per share.

On this basis, it could be argued that the Newmont Transaction provides an exchange ratio that is fair. In any event, irrespective of the merits of this argument in terms of fairness, it underpins “reasonableness”.

…

The realisable value of the consideration will fluctuate with movements in the Newmont share price. The real test is the price at the time of the Scheme meeting on 13 October 2023. … The recent volatility in the Newmont share price would suggest that shareholder decisions should be left as late as practically possible. If the Newmont share price recovers during this period, it could change Grant Samuel’s views on fairness, although Grant Samuel’s opinion would, in any event, still be that the Newmont Transaction is in the best interests of shareholders.

If a superior proposal does not emerge prior to the Scheme meeting, the choice is essentially between the Newmont Transaction and the status quo. In this case, Grant Samuel’s judgement is that the Newmont Transaction (including the Scheme) would be in the best interests of Newcrest shareholders.

53    Further, Grant Samuel stated:

There are also several other reasons why the Newmont Transaction could be considered reasonable and therefore would be in the best interests of Newcrest shareholders

While the Newmont Transaction does not meet the requirements for “fairness” under ASIC regulatory guidelines, the alternative framework for assessing the Newmont Transaction underpins its reasonableness. There are also other factors that Newcrest shareholders should consider in determining whether or not to vote for or against the Scheme (and the Newmont Transaction):

•    at the date of this report, Newmont shares are trading at a [three] month low and there are other factors that could suggest that there is some upside in the share price from these levels, such as a low forecast EBITDA multiple and high dividend yield relative to its peers.

Similarly, while the $500 million per annum of synergies that Newmont expects to achieve across the Merged Group might be reflected in its market price to some extent they will inevitably be risk weighted. If Newmont is able to achieve these synergies in full (and it has demonstrated its ability to deliver synergies through its acquisition of Goldcorp) there is likely to be a positive share price response. An additional $500 million of EBITDA is theoretically worth around $[3] billion, or $[2.60] per Merged Group share.

At the same time, there can be no guarantee that the Newmont share price will strengthen and in any event, such an increase in the Newmont share price represents value in the future rather than value today;

•    Newmont’s offer is “best and final”, and therefore it cannot be increased in the absence of a superior proposal from an alternative acquirer;

•    there are relatively few potential acquirers that have the scale and financial capacity to acquire Newcrest. Interest from financial buyers such as private equity funds is highly unlikely given Newcrest’s commodity exposure (and scale). Any interest is likely to come from either other gold sector participants or diversified miners. …

…

•    any potential alternative acquirer has had ample time to consider an acquisition proposal for Newcrest (since 6 February 2023) and the decline in the Newmont share price has opened a real “window of opportunity”. If a superior alternative acquisition proposal does not arise prior to the Scheme meeting it would be reasonable to conclude that the Newmont Transaction delivers the best available value to Newcrest shareholders; and

•    in the absence of the Newmont Transaction (or an alternative proposal or speculation as to an alternative proposal), it is likely that the Newcrest share price would fall, at least in the short term. Prior to announcement of the Revised Proposal on 3 February 2023, Newcrest shares were trading at around A$22 (equivalent to ~$15) (i.e. the “undisturbed” price). Since then, the listed gold sector has fallen by [7]%. It is likely that the Newcrest share price would also be lower now than it was prior to announcement of the Revised Proposal and, in the absence of any upward movement in the gold price, it may take some time for Newcrest’ share price to increase to the levels implied by the Newmont Transaction.

54    Grant Samuel’s reasoning and conclusions are clear and detailed, and the fact that its opinion is that the transaction is not fair, but reasonable and therefore in shareholders’ best interests, is not a reason to refuse to convene the Scheme meeting. That opinion and its cogency and foundations are matters for the shareholders to evaluate, not me. Of course, shareholders may also have to consider further fluctuations in the share price of Newmont shares through to the Scheme meeting that may affect the valuation of the consideration offered and therefore the expert’s calculations. But again, that is a matter for them.

55    Now a number of cases in the scheme context have considered expert opinions that a scheme is not fair but reasonable but nevertheless ordered the convening of a scheme meeting; see for example the decision of Vaughan J in Re Beadell Resources Ltd (2018) 133 ACSR 600 at [59] to [72]. I propose to adopt the same approach. In my view the conclusion provided in the expert report is not a reason to refuse to convene the Scheme meeting.

56    Let me now turn to the Newcrest equity incentives and possible separate class questions.

57    Newcrest has provided benefits to employees in the form of share-based compensation, whereby employees render services in exchange for shares or rights over shares (Newcrest equity incentives). This includes incentive plans and share acquisition plans. I should note that no Newcrest director is entitled to any shares or rights under the relevant plans.

58    It is a condition precedent of the SID and of the Scheme that Newcrest must take all necessary steps by 8.00am on the second court date to ensure that all Newcrest equity incentives vest or lapse before the Scheme record date so that, on implementation of the Scheme, Newmont will hold all of the issued shares in Newcrest and no other rights over shares will exist.

59    Accordingly, the Newcrest Board has exercised its discretions under the plans to ensure that all Newcrest equity incentives vest or lapse before the Scheme record date, conditional on the Scheme becoming effective. This includes allowing unvested rights to vest and freeing restricted shares of dealing restrictions.

60    Now an issue arises in the present context as to whether those persons with the benefit of Newcrest equity incentives who are also Newcrest shareholders should form a separate class from those Newcrest shareholders who do not hold such rights because they will receive a benefit from the Scheme. But in my view no separate classes arise. I have consistently held that holders of performance rights or other equity incentives who are also shareholders of the scheme company do not constitute a separate class for the purposes of s 411(1). This is because the legal rights of these shareholders are not so dissimilar from the rights of other shareholders as to make it impossible for them to consult together with a view to their common interest. They will each participate in the Scheme on the same basis and receive the same Scheme consideration as all other shareholders.

Are the shareholders to be properly informed?

61    The second principal aspect relevant to the exercise of my discretion is the adequacy of the information to be provided to shareholders.

62    Now Newcrest shareholders are to be presented with an appropriately detailed and clear explanation of the Scheme in the Scheme booklet, and they will have the benefit of the opinion of the independent expert as set out in the expert report. They also have the benefit of the recommendation of the directors in relation to the Scheme.

63    Section 412(1) of the Act and Sch 8 (Part 3) of the Regulations set out the disclosure requirements of the explanatory statement, which is included within the Scheme booklet. I am satisfied that the statutory disclosure requirements are met, and I am satisfied that information to be provided to shareholders is adequate for the purposes of the exercise of my discretion to convene a meeting.

Conclusion on the exercise of discretion

64    I am satisfied that the Scheme is of such a nature and cast in such terms that, if it achieves the statutory majorities at the Scheme meeting, I would be likely to approve it, and that it is therefore appropriate to make the orders sought convening the Scheme meeting. Let me address one other matter, although this will be developed at the second court hearing.

US securities law exemption

65    It is proposed that Newcrest shareholders with a registered address in the United States will be able to participate in the Scheme, so that if the Scheme becomes effective Newmont will be required to issue Newmont shares to those shareholders.

66    Now unless an exemption applies, all securities offered in the United States must satisfy the registration requirements of the Securities Act of 1933 (US) (as amended) and be registered with the US Securities and Exchange Commission. This includes the Newmont shares to be issued pursuant to the Scheme, which may be represented by Newmont CDIs or Newmont PDIs. The registration requirements are aimed at ensuring that companies disclose financial information relevant to the securities. A company that is required to comply with the registration requirements must create a registration statement, which often include a prospectus, with information about the securities, the company and the business, including audited financial statements.

67    In the case of the Scheme in which Newmont is proposing to issue securities as consideration to residents of the United States, Newmont may be able to rely upon the exemption to these registration requirements set out in s 3(a)(10) of the Securities Act.

68    As was said in Damian, T and Rich, A, Schemes, Takeovers and Himalayan Peaks (4th ed, 2021) (at [13.2.7]):

… it is generally accepted that securities can be issued to target members in, or who are citizens or residents of, the United States pursuant to an Australian scheme of arrangement without compliance with the US registration and prospectus requirements as a result of the exemption provided by section 3(a)(10).

69    Accordingly, if the conditions of the s 3(a)(10) exemption are satisfied, there is no need to file a registration statement with the SEC in respect of the offer and sale of the securities to be issued to persons who are citizens or residents of, the United States pursuant to the scheme of arrangement.

70    Section 3(a) of the Securities Act is in the following terms:

Except as hereinafter expressly provided, the provisions of this subchapter shall not apply to any of the following classes of securities:

…

[10] … any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval.

71    If the Newcrest shareholders agree to the Scheme and I make orders approving the Scheme, Newmont intends to rely upon that approval for the purposes of the exemption in s 3(a)(10) of the Securities Act in connection with the implementation of the Scheme. Newmont’s intention to rely upon the exemption in s 3(a)(10) of the Securities Act is disclosed in section 11.8 of the Scheme booklet.

72    Now before an issuer can rely on the exemption, a number of conditions must be satisfied. These conditions arise from the combined effect of the matters set out in s 3(a)(10) of the Securities Act as well as the Staff Legal Bulletin No. 3A (CF), Division of Corporation Finance, SEC, 18 June 2008 (SLB 3A). These conditions have been considered by me for the purposes of other schemes (Re Amcor Ltd (No 2) [2019] FCA 842 at [32] to [38]). One of the conditions is that the relevant court must be advised before any hearing at which the fairness of the terms and conditions of the scheme is approved that the issuer will rely on the s 3(a)(10) exemption based on that court’s approval in the event that the scheme is in fact approved (s 3(a)(10) of the Securities Act as well as SLB 3A. Further conditions include that the court approve the terms and conditions of the issuance and exchange to be conducted pursuant to the scheme of arrangement and that the court find, before approving the transaction, that the terms and conditions of the exchange are fair, both procedurally and substantively, to those to whom securities will be issued.

73    Jacobson J set out his approach concerning such matters in Re Atlantic Gold NL (No 2) [2014] FCA 869 at [8]. His approach was applied in Re Ellerston Global Investments Limited [2020] NSWSC 1108 at [18] to [19] by Black J and in Re Ardent Leisure Ltd [2018] NSWSC 1990 at [19] by Black J. In Re Amcor (No 2) at [37] and [38] I approved of and adopted the approach set out in Re Atlantic Gold NL (No 2) and in Re Ardent Leisure Ltd.

74    At the second court hearing in this case I am likely to adopt this approach. But at this stage I do not need to linger further on this aspect.

Conclusion

75    For the foregoing reasons I made orders convening the Scheme meeting and dealing with ancillary matters. I should say that I did not need to approve of the explanatory statement constituted by the Scheme booklet as this is required to be registered by ASIC in any event (see s 412(6)).

Associate:

Dated:    11 September 2023