Unless there’s a dramatic change of heart among the major player’s or a sharp change in stock market conditions, the proposed $US18 billion ’merger of equals’ takeover of Newmont Mining by Barrick Gold won’t happen.
A change of heart at the top of Newmont is unlikely after CEO, Gary Goldberg told Barrick and its forceful CEO, Mark Bristow, to go away with the merger idea, but suggested the two continue talking about the key to the whole deal – combining the two giants’ Nevada gold mining and processing operations.
It is an enormous and controversial deal that is likely to flounder because Newmont shareholders are not being offered a premium for control, which is usual in bids, especially where its all paper and no cash on offer.
If the merger/takeover did happen, the new company would produce nearly 2 million ounces of gold a year in this country, making it the second largest miner after Newcrest.
Newmont and Barrick have considerable assets in Australia. Newmont owns Boddington in WA and both companies own the huge Super Put near Kalgoorlie – between them they can produce more than 1.5 million ounces of gold a year and Newmont and Barrick have already expressed a desire to offload the Super Pit.
Newmont also owns the Tanami mine in the Northern Territory which produces around 470,000 ounces of gold a year.
Australia is the second largest gold producer in the world outside China. production jumped (as we reported earlier this week) to a new high in 2018 as mines expanded their output. Several new mines are due to come on stream this year and in 2010 which will further boost output.
The Australian assets of both companies will be snapped up quickly if they are put up for sale.
On Monday Goldberg defended Newmont’s previously agreed $US10 billion takeover of Canada’s Goldcorp as the best deal for shareholders after dismissing Barrick’s offer as “egocentric”. That’s a reference to Mark Bristow, the reportedly strong-willed Barrick CEO’s reputation.
“The combination with Goldcorp is significantly more accretive to Newmont’s shareholders on all relevant metrics compared with Barrick’s proposal,” Mr. Goldberg said.
Analysts say that while a merger of Barrick and Newmont would create a gold-mining giant with annual production of more than 10 million ounces, Barrick is not offering that premium for control, which will condemn the bid, despite some Newmont shareholders urging management to take it seriously.
Barrick claims the lack of a premium would see shareholders benefit from the value created by merging the two companies – a doubtful line and hiding the fact that Barrick doesn’t have the ability to fund even a partial cash component to any offer which would make it more attractive.
Barrick recently bought African gold miner Randgold for $US9 billion in shares. Newmont is offering its shares to buy Goldcorp in a $US10 billion deal which Barrick wants to be dropped.
The Financial Times reckons the Barrick bid for Newmont will “ultimately be decided by a small group of shareholders who own both companies.”
The paper says Newmont’s Mr. Goldberg and Tom Palmer — who will take over from Mr. Goldberg later this year — will meet shareholders this week, including BlackRock, the largest shareholder in Newmont.
The investors will debate whether the two companies’ operations in Nevada are best combined either via a joint venture or a takeover by Barrick.
Barrick has significant reserves in Nevada, while Newmont also has large processing facilities in the state.
Under the Newmont’s proposal, Barrick would have a 55% economic interest in the Nevada venture and Newmont 45% — a split that would also be reflected in their respective voting rights. “Newmont has consistently expressed to Barrick that we are open to a joint venture for our operations in Nevada,” said Mr. Goldberg.
“This proposal would enable both companies’ shareholders to realise the available synergies while avoiding the significant risks and complexities associated with Barrick’s unsolicited proposal,” he said.
In a statement Barrick’s CEO Mark Bristow said “Newmont’s latest proposal is essentially based on the stale and convoluted process that foundered previously. As usual, it comes with unrealistic preconditions including swapping the chairmanship and the leadership of the JV. Experience has shown us that JVs only work well when the majority owner is also the operator.”
In his statement on Monday, Mr. Goldberg took aim at Mark Bristow’s reputation, claiming there were doubts about the ability of Mr Bristow to run a global company and realise the promised $US750 million of annual cost savings and synergies.
“Prior to assuming his new role at Barrick, Mark managed only five assets on one continent — he has never managed a global portfolio like Barrick’s,” Mr. Goldberg said. A combination of Barrick and Newmont would create a company with operations on five continents in 18 different countries.