Barrick Gold Corp. has plenty to gain both financially and operationally by absorbing Newmont Mining Corp. and creating far and away the largest gold-mining company in the world.
The benefits for Newmont and its investors from bowing to a US$19-billion all-stock offer aren’t so clear.
Barrick, fresh from closing its takeover of Randgold Resources Ltd., would snap up its top rival, which has mines in close proximity to its own in Nevada and Africa, and a balance sheet it has stewarded responsibly over the past half-decade as industry conditions weakened and the majors’ reserves dwindled.
For all his judiciousness, Gary Goldberg, chief executive officer of Denver-based Newmont, would be rewarded with no premium for his shareholders and a demand to scrap the company’s own US$10-billion acquisition of Goldcorp Inc., according to Globe and Mail sources and a brief statement from Barrick on Friday confirming that it is indeed running the numbers on a bid.
Also being discussed is the possibility of Australia’s Newcrest Mining Ltd., or one of its domestic peers, buying Newmont’s Australian properties, which are on track to produce 1.5 million ounces of gold this year. Presumably, the proceeds would more than make up for the US$650-million break fee the bulked-up Barrick would owe Goldcorp for leaving it at the altar.
Boy, things have changed in the mining industry since last year, when fortunes were shrinking and investors demanded serious responses from executives. It appears Mark Bristow, Barrick’s CEO and the former boss at Randgold, has decided the sector requires a disruptive force, and it’s going to be him.
The question is whether Newmont sees things his way. The two companies had discussed a tie-up as recently as 2014, attracted by potential cost savings in the hundreds of millions of dollars. But they gave up on the idea over a disagreement on who would run the show.
Since then, Newmont has taken strides to cut costs and reduce debt, which at the end of 2018 stood at slightly more than two-times its annual cash flow, down from 4.5 times in 2014.
This week, the company reported fourth-quarter earnings that blew analysts’ estimates out of the water on the strength of higher gold output and cost improvements. It added 6.7 million ounces of gold reserves for the year, though that failed to make up for depletion and some negative revisions. Canada’s Competition Bureau has given its nod to the takeover of Vancouver-based Goldcorp, a deal that Newmont has touted for boosting cash flow per share once it closes before midyear.
Barrick, meanwhile, closed its acquisition of Randgold on Jan. 1, adding about one million ounces of gold production. Following the release of financial results on Feb. 13, investors were disappointed that the new company might keep them waiting for the promised benefits, even with strengthening gold prices. It predicted a jump in costs and lower-than-expected production for 2019 after reporting a net loss of $1.2-billion in the fourth-quarter, a result marred by impairment charges at mines in Peru and Argentina.
Mr. Bristow urged investors to hold tight – results of the cost-cutting efforts at the new Barrick will take time. He also showed he is nothing if not cagey. In an interview with The Globe at the time, he was adamant that he won’t be rushed into another big deal, saying it’s cheaper to develop new discoveries than it is to target a competitor.
Then, slightly more than a week later, he has conceded that, not only is he considering a purchase, but he’s looking at making the largest one available. Running a mining outfit with a market capitalization of more than US$40-billion would be no small feat just months after Mr. Bristow sold one for US$6-billion.
With the terms currently being discussed, though, Newmont’s board and shareholders may not be all that impressed.