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In this Jan. 29, 2014 photo, a drill finishes up the blast pattern at Barrick Gold Corp.'s Cortez Hills, Nev., open pit site.

Ross Andreson/THE CANADIAN PRESS

The market is betting Barrick Gold Corp. could still pull off a multibillion-dollar takeover of Newmont Mining Corp., if the companies can show major cost savings from a deal.

Signalling the possibility of a bid, investors on Monday sent Newmont's stock up 6 per cent to $25.05 per share, and drove Barrick down 4 per cent to $17.28. The world's largest gold producers halted merger talks late last week, but remain open to the idea of a combination, according to a source familiar with the situation this week.

If Newmont and Barrick revive their negotiations, success will depend on how much money the North American-based miners can save from combining their operations in Nevada.

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Barrick operates six mines in the state and Colorado-based Newmont operates 18. The companies already work together on their Turquoise Ridge mine in Nevada. In their latest merger proposal the companies had found as much as $1-billion in annual savings, said a a person familiar with the situation.

Analysts, however, are not convinced $1-billion of savings is attainable. They peg the savings anywhere between $150-million and $500-million per year. "The creation of new Barrick hinges largely on the ability of the combined company to generate the significant cost savings," Greg Barnes, analyst with TD Securities, said in a note to clients.

"Without the savings, we see little merit in merging the two companies since production growth would remain challenging and the combined balance sheet would carry significant net debt," he said.

Some of the savings are expected to come from the Carlin Trend, an area in Nevada where Barrick and Newmont have operated for decades.

Barrick's prized Goldstrike asset is located there and Newmont operates eight mines in the area.

Other savings are expected to be found from combining the miners' regional offices in the Americas, as well as Australia.

But both companies have already trimmed operating costs to deal with the slump in the gold prices.

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"I don't think there's a lot of fat to cut from that perspective," said Adam Graf, an analyst with Cowen and Co.

Pawel Rajszel, analyst with Veritas Investment Research, said there was value to merging if the companies could find $500 million in annual savings. Anything less than that would not be as compelling.

The combined company could end up producing more than 11 million ounces of gold per year and carry more than $15 billion in debt.

Barrick, the world's largest gold producer, would have to dilute its stock significantly to make an all-stock bid for Newmont.

The company has little cash to play with and is still paying the price for borrowing billions to buy copper company Equinox Minerals for $7.3-billion in cash.

If Barrick goes with the 13 per cent premium established under its latest proposal, the Canadian miner would have to issue 730 million shares.

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Under their latest terms, the companies would have spun out their Asian and Australian assets into a smaller Barrick.

It is unknown whether Barrick and Newmont will be able to resolve what has been described as minor differences on what assets should be spun out.

This is the third time that the North American companies have seriously entertained a merger.

Spokesmen for Barrick and Newmont declined comment.

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