The marriage of Toronto’s Barrick Gold and Denver’s Newmont Mining, the two big beasts of the gold world, should have happened a long time ago. The theoretical deal made perfect sense because combining their properties in Nevada could save fortunes, all the better to reward shareholders.
And since the top mining companies tend to be run by egomaniacs obsessed with size, the union would come with bragging rights. Barrick-Newmont would bury the competition.
Mark Bristow, the new chief executive of Barrick, has revived the idea of a blockbuster Barrick-Newmont merger. If there is any executive in the mining industry who could pull off such a stunt, it is him. He has the chutzpah and his track record of superb value creation at his old haunt – Randgold Resources, which Barrick bought last year – might ensure the support of investors.
He would also have the full backing of John Thornton, the former Goldman Sachs president who is the executive chairman of Barrick and the man who went after Randgold, in good part because he wanted to recruit Mr. Bristow. Together, Mr. Bristow and Mr. Thornton are the double-headed great white shark of the mining world. They are hungry and the company has a board of directors that seems unlikely to reject their ambitions, no matter how expensive and complicated the deal might be.
But whether the duo can pull it off is an open question. Several attempts over the past decade or so to merge the companies came close, but always blew up in the late stages of negotiations. If those talks were complicated then, they would be doubly complicated today, given that Newmont also wants to scramble to the top of the global gold pile – apparently on its own terms. Last month, it agreed to buy Vancouver’s Goldcorp in an all-stock US$10-billion deal; the enlarged Newmont would displace Barrick as the top gold producer.
Another obstacle: There is no sense Newmont shareholders are bucking to sell, all the more so since Barrick – according to Barrick – is contemplating a no-premium deal. Newmont just put out stellar financial results. The company is considered well managed and the cost-reduction campaign in Nevada, the heart of Newmont’s operations, have been fruitful. In other words, Barrick might have to offer a fat premium to get taken seriously.
The timing is a big obstacle, too. Barrick and Randgold are just coming together and Mr. Bristow is trying to sort out Barrick’s messy African and South American portfolios. Having gutted Barrick’s Toronto head office, he doesn’t have a lot of spare management bandwidth to put two companies together, let alone three.
The Globe and Mail reported on Thursday that Barrick is mulling a hostile bid for Newmont for about US$19-billion in stock. It would flip some of Newmont’s mining operations to Australia’s Newcrest Mining or another buyer, according to sources. Barrick would keep Newmont’s mines in Nevada and Africa. On Friday morning, Barrick said it “confirmed that the company has reviewed the opportunity to merge with Newmont Mining Corporation in an all-share, nil-premium transaction. No decision has been taken at this time.” The short release was evidently designed to test the response of both Barrick and Newmont shareholders.
Based on Thursday’s closing price, Barrick and Newmont together would have a market value of about US$42-billion. In trading on Friday, Newmont shares rose 3 per cent, and they were up nearly 10 per cent on the week. Barrick shares fell 2.4 per cent in Toronto.
Peter Munk, the late founder and chairman of Barrick, would approve of merging Barrick and Newmont. It was the one defining deal that both obsessed and eluded him.
The first rumours of merger emerged in 2007, when Mr. Munk was still very much in command of Barrick, even if he was not the CEO at the time. Barrick, assembled through a flurry of takeovers, was his baby and he knew that the cost synergies of joining the two companies’ Nevada operations would make shareholders salivate. Newmont and Barrick have about a dozen adjacent and nearby gold properties and they jointly own Nevada’s Turquoise Ridge mine. Analysts said at the time that the savings from putting them all together would range from US$250-million to US$500-million a year. By 2014, the synergies estimate had climbed to US$1-billion. Today’s figure, however, could be less than the 2014 estimate, if only because both companies have crunched costs in Nevada since then.
In 2014, just as Mr. Thornton was replacing Mr. Munk as chairman, another big attempt was made to bring Barrick and Newmont together. The companies had hoped to announce an all-stock merger by the spring of that year. But the deal collapsed just before reaching the finish line amid rumours of fighting over where the new head office would be – Toronto or Denver – and personality conflicts.
Two years later, Mr. Munk, then frail and no longer directly involved in Barrick, said he still thought a merger was possible. “Of course it makes sense to consolidate,” he told The Globe and Mail in an interview (Mr. Munk died a year ago).
Mr. Bristow obviously has a plan to take over Newmont. That plan might see Newcrest, Australia’s biggest gold producer, buy Goldcorp as well as Newmont’s Australian mines (it was reported that Newcrest was in pursuit of Goldcorp before Newmont snatched it). Will he go for it? He might, because it’s probably now or never. Once Newmont pockets Goldcorp, Newmont becomes a formidably big and expensive acquisition. But a nil-premium offer might not do the trick. Newmont is not a broken company. Its shareholders will want a reward that Mr. Bristow and Mr. Thornton may not be able to offer.
Eric Reguly