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Barrick Gold just traipsed into a potentially nasty battle short of ammunition.

On Monday morning, John Thornton, Barrick’s executive chairman, and CEO Mark Bristow unveiled a nil-premium, all-share offer for Colorado’s Newmont Mining. Hostile offers generally come with juicy premiums or else they don’t work, and this bid is already not working.

Were it to succeed, the audacious bid, which comes shortly after both companies announced transformative mergers of their own, would unite the two biggest names in gold mining, creating a colossus with gold operations on four continents, annual revenue of US$15.6-billion and trading liquidity that, to use Barrick’s politically incorrect term, would “dwarf” the competition.

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Even before he learned the details of the “at market” offer, which valued Newmont at US$17.8-billion, Newmont chief executive Gary Goldberg dismissed the takeover attempt as a non-starter. He’s sticking with his plan to buy Vancouver’s Goldcorp for US$10-billion.

In a Bloomberg interview published shortly before Barrick revealed what it labelled an “unprecedented value creation opportunity for shareholders,” Mr. Goldberg called Barrick’s takeover idea “a desperate and bizarre attempt to muddle up our deal” with Goldcorp, all the more so since Newmont’s investor returns in recent years have embarrassed those of Barrick.

Since 2014, the year Mr. Thornton – a former Goldman Sachs president – replaced Barrick founder Peter Munk as chairman and the two companies called off a merger attempt, Newmont’s shareholder returns, including reinvested dividends, are up 65 per cent. Barrick’s are down 22 per cent over the same period.

You can assume Mr. Goldberg is thinking that a value destroyer – Barrick – has absolutely no business lecturing him on how to create value.

But wait. Mr. Thornton and Mr. Bristow are throwing out a rather alluring number in the hopes of turning Newmont shareholders into believers. They claim that putting Barrick and Newmont together would produce about US$7-billion, pretax, in value for investors from deep cost-cutting. Those “synergies,” as they are known in analyst argot, would come largely from combining the two companies’ mining operations in Nevada, where they have about a dozen adjacent and nearby properties and processing plants, and jointly own the Turquoise Ridge mine.

That’s a big, fat number – Barrick claims it is 7.5 times greater than the synergies that would pop out of the Newmont-Goldcorp merger. Hence the nil-premium offer. “The synergies are clearly the premium,” Mr. Bristow said on Monday’s conference call with analysts.

On average, Barrick says, the annual synergies would be more than US$750-million a year (pretax) in the first five years after the deal. In 2014, analysts had put the expected synergies from combining the two companies at US$500-million to US$1-billion, tops. Barrick’s management at the time privately said the number was roughly accurate, although they thought a figure close to the low end of the range was more likely. Since then, however, both Newmont and Barrick have crunched costs in Nevada, implying that the synergy range today would be smaller than the one touted five years ago.

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The key question is whether Mr. Bristow can deliver on the promised synergies. In its presentation, Barrick said US$4.7-billion of the US$7-billion (again, pretax, net present value) would come from combining the Nevada portfolios. The rest would come from “corporate” synergies – that is, eliminating a head office – and joint exploration and project planning and supply-chain management.

While Mr. Bristow ran a famously lean operation at Randgold Resources, the Africa-focused gold miner that was bought by Barrick in the fall, the synergy number seems aggressive – although perhaps not unachievable. Mr. Bristow had a fine record of value creation at Rangold and is such a penny pincher the company didn’t even really have a head office (one of his first acts as Barrick’s new CEO was to substantially reduce staff in Barrick’s Toronto headquarters).

The point is, if Mr. Bristow is right about his synergy estimate, Newmont shareholders would want some of that upside immediately in the form of a premium. But there is no premium and the US$7-billion synergy figure is theoretical. Sure, it could be achieved in time. But over how much time, and what if Mr. Bristow’s synergy goal proves elusive? Newmont has not opened its Nevada books to Barrick, so Mr. Bristow’s figure is an educated guess.

As it is, the bid seems an extreme long shot, even if Newmont said that it will be evaluated. It vows to stick with the Goldcorp deal. In a statement, Newmont said it had rejected mergers with Goldcorp and Randgold in the past, implying there was nothing new in Barrick’s proposal, noted its own superior record of value creation compared with Barrick’s and highlighted Barrick’s “unfavourable jurisdictional risk” – a reference to the Canadian company’s heavy exposure to politically volatile Africa. Newmont added that it was open to the idea of a Nevada joint venture with Barrick.

Barrick shares fell on Monday, meaning the offer actually would come with a negative premium. If Mr. Thornton and Mr. Bristow want to be kings of the gold world and bag one of the big hitters on the New York Stock Exchange, they will have to pay up. Promises of synergies galore are not enough.

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