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Barrick has dropped its hostile takeover bid for Newmont in favor of a joint venture between the two miners’ Nevada assets.
Barrick Gold (TSX:ABX,NYSE:GOLD) and Newmont Mining (NYSE:NEM) have signed an implementation agreement with the intention of creating a joint venture (JV).
It will combine their respective mining operations, assets, reserves and talent in Nevada, the companies announced in a joint statement on Monday (March 11).
With the JV news comes the official closure of Barrick’s hostile takeover bid for Newmont, which appeared to be dead in the water last week when Newmont shareholders rejected the merger proposal from Barrick. Barrick President and CEO Mark Bristow noted that this new agreement marked the successful culmination of a deal that had been more than 20 years in the making.
“We listened to our shareholders and agreed with them that this was the best way to realize the enormous potential of the Nevada goldfields’ unequalled mineral endowment, and to maximize the returns from our operations there,” Bristow said.
“We are finally taking down the fences to operate Nevada as a single entity in order to deliver full value to both sets of shareholders, as well as to all our stakeholders in the state, by securing the long-term future of gold mining in Nevada,” he added.
The miners, which have operated independently in Nevada for decades, spent years trying to join forces in a deal that would appease the shareholders of both companies. With the proposed JV, Barrick and Newmont could garner an estimated US$500 million in average annual pre-tax synergies in the first five full years of the combination, which is projected to total US$5 billion pre-tax net present value over a 20-year period.
According to a report from Raymond James, Barrick is expected to be the operator of the joint venture and will own approximately 61.5 percent, with Newmont expected to own the remaining 38.5 percent.
“This agreement represents an innovative and effective way to generate long-term value from our joint assets in Nevada, and represents an important step forward in expanding value creation for our shareholders,” said Gary Goldberg, CEO of Newmont.
“Through the joint venture, we will also continue to pursue the highest standards in safety, along with responsible and meaningful engagement with our employees, communities, and other stakeholders,” he added.
Although the JV seems to be an advantageous move for Newmont, which is now able to continue on with its acquisition of GoldCorp (TSX:G,NYSE:GG) as well, it seems to be a bit of a surprising move on Barrick’s end, as the company called a JV offer “stale” and “convoluted” just last week.
However, despite Barrick’s previous comments on a JV in Nevada, it is clear that both miners wanted to find a way to bear a massive presence in Nevada — a geographical area that the Fraser Institute recently named as the most attractive mining jurisdiction.
“Following the completion of the joint venture, the Nevada complex will be the world’s single-largest gold producer, with a pro forma output of more than four million ounces in 2018, three tier one assets, potentially another one in the making, and 48 million ounces of reserves,” the companies noted in a press release.
The establishment of the JV is subject to the usual conditions, including regulatory approvals, and is expected to be completed in the coming months. The miners noted that the JV will not include Barrick’s Fourmile project or Newmont’s Fiberline and Mike deposits, pending the determination of their commercial feasibility.
With the current price of gold once again slipping below the US$1,300 per ounce threshold, a JV of this scale, with billions of reserve to uncover, could be exactly what the gold space needs right now. This has the potential to increase investor interest and confidence, drive up both the demand and price of the yellow metal and to garner further attention on the precious metals sector as a whole.
As of 11:22 a.m. EST on Monday, Barrick was up 1.96 percent, trading at C$17.68; meanwhile Newmont was down 2.24 percent, trading at US$32.96.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.
