Barrick Gold Reacts to Newmont’s Takeover Bid Rejection

Barrick Gold (TSX:ABX,NYSE:GOLD) reacted to Newmont Mining’s (NYSE:NEM) merger rejection in favor of a joint venture proposal on Monday (March 4), calling the idea “stale’ and “convoluted.”

Newmont’s board made the unanimous decision to refuse the US$18-billion offer, instead proposing a joint venture with Barrick that would combine the Nevada assets of the two miners for a cost-savings strategy that could potential generate billions of dollars.

“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,” Mark Bristow, president and CEO of Barrick, said in response to Newmont.

“Experience has shown us that JVs only work well when the majority owner is also the operator,” he added.

When Barrick first announced its hostile takeover bid for Newmont, Bristow noted that the Nevada assets were the crux of the merger proposal.

“The whole of Nevada [would] effectively [be] one orebody,” Bristow said, adding, “[t]he 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.”

In fact, Bristow revealed that the merger would create US$4.7 billion from Nevada synergies alone.

Now, Barrick is left baffled by how Newmont sees more benefits from continuing on with its acquisition of Goldcorp (TSX:G,NYSE:GG) than joining forces to create a super company with a massive presence in Nevada — a geographical area that the Fraser Institute recently named as the most attractive mining jurisdiction.

“Nevada, with a combined 76 million ounces, will be worth a whole lot more if it is run by one operator. We know we can do that more efficiently than Newmont, and that it will be worth a lot more to both Newmont and Barrick shareholders under that scenario,” Bristow noted.

“By the way, based on analyst consensus NAV, the Nevada JV ownership breakdown should be 63/37 percent, without the full potential of the Goldrush-Fourmile project taken into account. If you factor that in, it’s materially more than 2/3-1/3 in favor of Barrick,” he added.

At this year’s Prospectors & Developers Association of Canada convention, M&A activity was on the minds of many industry insiders’, with a few notable names against the current trend.

“Mining companies have not rewarded investors since the bull market for gold started in 2003,” he explained. “So I don’t really understand how getting bigger is intended to reward shareholders,” Mercenary Geologist Mickey Fulp told the Investing News Network (INN).

“I’ve been an outspoken critic of all these mergers,” he continued. “The Barrick Gold and Randgold Resources made some sense. Of the majors, over the last 15 years Randgold has performed better than Barrick or Newmont Mining or Goldcorp have,” he added.

Alain Corbani of Finance SA was also forthcoming with his thoughts on Barrick’s bid for Newmont, telling INN, “there are two approaches to this as an investor … the first one is to think that Barrick has good reasons to find more synergies with Newmont, especially in the US, we all agree with that — but there are ways to do it.”

Adding, “one of my American peers said that it is very arrogant for one company to make an offer to purchase another company at a discount.

Corbani agrees with this sentiment, stating that the expense of doing this falls on the shareholders and that this is how a company loses credibility.

As the M&A activity continues to expand, only time will tell if these two gold mining giants will ever find a solution that supports the bottom line of all shareholders involved.

As of 8:42 p.m. EST on Tuesday (March 5), Barrick was trading at C$16.94; meanwhile Newmont was relatively flat at US$34.50.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.