One week after Barrick Gold officially announced its desire to take over Newmont Mining, Monday was a busy day as the two companies battled over their competing views of how to proceed from here.
Newmont announced Monday morning that they have rejected Barrick’s $18 billion all-stock takeover bid. They also provided a “joint venture term sheet” detailing how the two companies can work together to operate and manage their Nevada assets.
Newmont said shareholders would benefit from the merger of Newmont and Goldcorp which is in the works, along with a joint venture between Barrick and Newmont in Nevada.
Barrick’s initial reaction was dismissive. The company released a statement from Chief Executive Officer Mark Bristow, saying that “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 joint venture. Experience has shown us that joint ventures only work well when the majority owner is also the operator.”
Barrick would be the majority owner in a joint venture. Newmont proposed a split of 55 percent Barrick and 45 percent Newmont. Barrick, on the other hand, said that it should control at least 66 percent of a joint venture.
Late in the day Monday, Reuters reported that Barrick CEO Mark Bristow wanted to speak immediately with Newmont about their joint venture proposal.
In the Elko area, there has been a lot of concern about the economic impacts that the merger of the two gold giants could have on the region.
“I think competition is good,” County Commissioner Cliff Eklund said Monday. “I don’t know that one big conglomerate would be in the best interest of the county.”
Eklund and other commissioners praised all that the mining companies have done for the region.
“I am extremely grateful and thankful that we have mining as an economy around here; it provides so much opportunity and so many jobs and it’s just such a big part of our economic portfolio,” Commissioner Delmo Andreozzi said. “All of the mines around here do a lot of corporate giving to a lot of different things, they support a lot of projects that we all benefit from. You don’t know what the impact would be if (Barrick and Newmont) were just one company — would we see some adverse effects from that?”
Elko Mayor Reece Keener said he has received only affirmative feedback since a story in last week’s Elko Daily Free Press shared his concerns about the possible negative impacts of a Barrick-Newmont merger.
“As Elko Mayor, I’m compelled to evaluate any such mergers through the prism of ‘what’s best for Elko’s future,’” Keener wrote in an email on Monday. “My conviction remains that a dual, competing mine operator model has worked very well for Elko for more than a decade and it represents our best option for continued prosperity in the future.
“Elko is a major stakeholder caught in the crosshairs of these high-stakes merger negotiations. My hope is that both entities will take into account the massive, regional economic implications of their actions, and consider the thousands of dedicated employees and contractors that have developed the world-class mining assets that are now the subject of boardroom brawling,” Keener wrote.
Barrick, on the other hand, asserted that a Barrick-Newmont merger would be good for Nevada. One of the Barrick documents released Monday said that “Nevada will form the absolute core of a combined Barrick/Newmont, which will result in significantly more capital invested to maximize the geological potential of Nevada. A combined company would have lower-cost operations, which will lower the cut-off grades of reserves and resources, and result in much longer-term and more-profitable mines. This would mean longer-term employment for our employees, greater business for our suppliers and local communities, and more cash flow to invest in the discovery and development of new mines — all of which benefits the economy of Nevada. The Newmont/Goldcorp transaction does nothing for Nevada, and their assets will compete for capital that could otherwise be invested in Nevada.”
John Dobra, a retired University of Nevada, Reno economics professor, said that although it is impossible to be sure what will transpire if a merger does take place, he thinks it is likely that there would be some consolidation at the headquarters and in local management and in areas of the company where there is duplication, but there probably wouldn’t be that much of a loss of jobs locally in the Elko area.
“They are not going to touch the people who are driving trucks and operating shovels, because they are the ones who make the money,” Dobra said.
If Barrick wants to proceed with a hostile takeover, Dobra said, they will probably have to come up with more money.
“Barrick is not even offering fair value for the (Newmont) stock,” Dobra said.
Barrick’s statements have said that Newmont stockholders would benefit from the merger because of the cost savings which the combined companies would end up seeing.
“I’m seeing comments from shareholders saying ‘I want four of Barrick for one of my Newmonts,’” Dobra said. “But Barrick is only offering 2.6. Barrick has got to sweeten the deal considerably.”
Dobra looked back to when there was an attempt at a Newmont takeover more than 30 years ago, and the company’s stock went from about $35 to $105 in about six weeks. The group seeking to take over Newmont brought in Texas oilman T. Boone Pickens to provide an influx of cash. Newmont ended up selling its non-gold assets to raise the capital it needed to retain the gold portion of its business.
“They said we’re going to bet it all on gold, and they paid off Pickens and everyone else that had jumped in,” Dobra said.