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The mining newspaper for Alaska and Canada's North
Says merger is long overdue transformative shift; Newmont left perplexed by hostile, negative offer by rival gold miner North of 60 Mining News – March 1, 2019
Following last year's merger with Randgold Resources, Barrick Gold Corp. has now made an offer to acquire Newmont Mining Corp., a deal that would merge the world's two largest gold mining companies into a behemoth valued at around US$42 billion based on the current market capitalization of the two gold producers.
The combined company would also have 141 million ounces of gold in reserves and 275 million oz in resources.
"The combination of Barrick and Newmont will create what is clearly the world's best gold company, with the largest portfolio of tier-one gold assets and the highest level of free cash flow to drive future growth and support sustainable shareholder returns, run by a management team with an unparalleled record of delivering value," said Barrick President and CEO Mark Bristow.
He said the proposed merger is expected to unlock more than US$7 billion in pre-tax net present value of synergies, a major portion of which is generated by combining the two companies' highly complementary assets in Nevada, including Barrick's significant mineral endowments and Newmont's processing plants and infrastructure.
Barrick's offer also gives Newmont shareholders another option to consider when they vote on Newmont's proposal to buy Goldcorp Inc., an acquisition that would catapult Newmont above Barrick as the largest gold mining company on Earth.
Newmont perplexed by bid
Newmont, however, has been in merger talks with both Randgold and Barrick before and believes its bid to acquire Goldcorp is a better deal for the world's second largest gold mining company and its shareholders.
"Newmont has previously reviewed and rejected potential combinations with each of Barrick and Randgold Resources Ltd., prior to their merger. Newmont's proposed combination with Goldcorp represents the best opportunity to create optimal value for Newmont's shareholders and other stakeholders," the company said in a written statement.
Newmont said Barrick's proposal ignores the risks and exaggerates the rewards of merging the world's top two gold producers.
"Newmont has previously determined that Barrick's risk and return profile is inferior on many fronts, including factoring Barrick's comparatively ineffective operating model, poor track record on delivering shareholder returns and unfavorable jurisdictional risk," the company penned in response to Barrick's offer.
While the operating model and shareholder returns may improve with the addition of Randgold management, Randgold's portfolio adds to the perceived jurisdictional risks.
Goldcorp's portfolio, on the other hand, is located in the Americas.
"Compared to the demonstrated and compelling value creation benefits of the Newmont Goldcorp transaction, the synergy estimates referenced in the Barrick proposal are unsubstantiated and do not account for cost reduction initiatives Newmont has already implemented at various operations, including in Nevada, and would rely on a high-risk operating model to be realized," Newmont wrote.
Newmont Mining CEO Gary Goldberg told Daniela Cambone with Kitco News that the synergies between Newmont and Barrick's Nevada mines and facilities could more readily be captured through partnerships, and without the risks involved with the merger and portfolio that comes with it.
"This (the Goldcorp transaction) is something we can do and still work constructively, if they so choose to do that at Barrick, to deliver the synergy values that we both believe that are available at Nevada to be gained," has said.
Goldberg had hoped that with Bristow coming in as CEO of Barrick following that company's merger with Randgold, the two executives with strong mining backgrounds could sit down without lawyers and accountants to talk about what could be accomplished if the two companies worked together.
"That is why I am left a little perplexed as to this direction to go," he said.
Negative offer
Bristow argues that Newmont's drop in stock price following the proposed Goldcorp buyout indicates that Newmont shareholders are not keen on the purchase and a Barrick-Newmont merger provides a superior offer that would be better received.
"The market reaction to date to your Goldcorp transaction suggests that investors do not endorse your rationale for the transaction and have concerns about the condition of Goldcorp's asset base," Bristow penned in a letter to Goldberg and Newmont Mining Chair Noreen Doyle.
In addition to much more robust synergies, he said a Barrick-Newmont merger would increase Newmont shareholder value; and provide Newmont shareholders ownership of a much higher quality company with a better asset base, significant liquidity, a strong balance sheet and a proven management team.
"Most important, it will enable us to consider our Nevada assets as one complex, which will result in better mine planning and fully realize the state's enormous geological potential for all stakeholders," Bristow said.
The Barrick CEO says the merger would position the combined companies' Nevada assets to deliver more than 20 years of profitable production, which would secure Nevada's position as the most prospective gold region on Earth.
Barrick believes the synergies and the superiority of the deal is enough to sway Newmont shareholders and is not offering a premium on Newmont shares.
The Barrick proposal to Newmont is for a merger in which each Newmont shareholder would receive 2.5694 Barrick shares per Newmont share, representing an at-market transaction based on the volume-weighted average trading prices of the shares of Barrick and Newmont on the New York Stock Exchange over the 20 trading days ended Feb. 20, the last trading day before the merger news was leaked to the press.
The price considered in this bid, however, is 8 percent lower than the value of Newmont's shares on the day the offer was made. Goldberg called this a "a negative premium".
As a result, Barrick shareholders would own approximately 55.9 percent of the merged company and Newmont shareholders would own approximately 44.1 percent.
Barrick said it intends to match Newmont's annual dividend of US56 cents per share.
To help pave the way for Newmont shareholders to vote on Barrick's offer, a subsidiary of Barrick submitted a shareholder proposal, to be voted on at the next Newmont annual meeting of stockholders, to preserve the ability of Newmont's shareholders to call a special stockholders meeting to ensure that if Newmont shareholders vote down the Goldcorp deal, they are in a position to take up a vote on the Barrick offer.
Barrick, however, has offered to enter into negotiations with the Newmont board and management if they decide to drop the Goldcorp arrangement.
"We are prepared, promptly following the termination of the Goldcorp arrangement agreement, to enter into a merger agreement in customary form that would provide materially greater value to your shareholders over both the short and long term," Bristow wrote to Doyle and Goldberg.
"Considered globally, the merger represents a radical and long-overdue restructuring of the gold industry, and a transformative shift from short-term survival tactics to the long-term creation of sustainable value," Bristow said.
Newmont said its board will look at the offer but does not sound convinced that it will take Barrick up on the proposal to merge the two gold mining giants.
Goldberg said merging with Barrick was not a good deal for Newmont when it looked into a merger with the company in 2014 and the record since that time does not indicate a deal today would be any better.
"Since that time, we have added 65 percent total shareholder return, Barrick has lost 22 percent, they have destroyed shareholder value since we broke off those discussions," the Newmont CEO told Cambone on Feb. 25.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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