Maybe Barrick Gold Corp.'s shareholders should thank Newmont Mining Corp. – and, perhaps inadvertently, Barrick's incoming chairman John Thornton – for scuttling merger talks. The idea of creating a gold-mining behemoth is a major distraction from Barrick's job at hand: to remake itself into a company more focused on getting smarter than getting bigger.
Toronto-based Barrick announced Monday that Denver-based Newmont had terminated talks to merge the world's two biggest gold companies. Thus ends – for now, at least – a long, off-and-on courtship that had heated up again in recent weeks, ahead of Barrick chairman and founder Peter Munk's retirement at Barrick's annual meeting Wednesday. In its news release, Barrick sounded like a jilted lover left standing alone at the altar, trying to explain to the guests why there would be no cake and dancing.
But the question is, why was Barrick so in love with the idea of a Newmont merger? Wasn't this the kind of deal-making drama that got the company into trouble over the past few years?
It's hard to escape the appearance that the urgency of this deal was to deliver one last grand hurrah for Mr. MunkThe legendary dealmaker became highly vocal about the deal in the past week, including some pointed criticisms of Newmont's corporate culturethat certainly contributed to Newmont's cold feet.
But it appears John Thornton, Barrick's co-chairman who is about to assume the chairmanship, was the bigger problem. Newmont chairman Vincent Calarco wrote a letter to Barrick's board which Newmont posted on its corporate website Monday morning, accusing Mr. Thornton of not being "constructive."
If it were Mr. Munk that Newmont saw as a stubborn impediment to an agreement, that might suggest that the door could re-open once Mr. Munk's retirement party died down. But Mr. Thornton's not about to go anywhere; with him assuming the helm on Barrick's board, it's hard to see how this rift can be easily reconciled.
The snub may be a blessing for Barrick anyway. This felt like Barrick was trying to secure a huge, defining deal at a time when it had been pledging to define itself by other yardsticks – to no longer be the company for whom being the biggest was never big enough.
After a series of misguided acquisitions that led to expensive writedowns, Barrick has been insisting it turned over a new leaf – focusing on "capital discipline and operational excellence," and a "greater focus on generating higher returns even if that means producing fewer ounces," as president and chief executive officer Jamie Sokalsky put it in Barrick's year-end earnings release in February. Barrick adopted conservative reserve assumptions that reduced its reserve estimates by more than 25 per cent, slashed capital spending and has been selling off non-core assets.
"We will not veer from this course," Mr. Sokalsky pledged.
Yet Newmont looks like one colossal veer. Yes, there may be significant cost synergies to be had (though industry analysts question whether they are as big as Barrick claims). But a merger this huge would be followed by the monumental task of combining the two companies; it would take years for Barrick to returnn to its strategic path, if it ever found its way back at all. As my colleague Tim Kiladze recently noted, Newmont looks a lot like Barrick – a massive, heavily indebted gold company that got too fat and cumbersome for its own good, and now is trying to turn around the Titanic.
The notion of solving two big problems by combining them into an even bigger one not only sounds risky, it flies in the face of what Barrick has, to its credit, been trying to do lately. With Mr. Munk's going-away present now looking impossible, perhaps the best gift Barrick can give its shareholders is to let the deal die – and to stick to its task of getting its own house in order before getting seduced back into its old deal-making traditions.
Follow David Parkinson on Twitter at @ParkinsonGlobe.
David Parkinson