Frequently Asked Questions (From an updated Barrick presentation titled "Capturing the Missing Billions")
Why did Barrick not propose to pay a premium to Newmont shareholders?
Under the terms of Barrick’s proposal, Newmont shareholders would own approximately 44% of the combined company and would therefore share proportionately in the expected operating and other synergies that are estimated to average $750 million per year over the first 5 years and have a net present value (“NPV”) (pre-tax) of over $7 billion. Newmont shareholders will benefit from the value creation resulting from these synergies and other cost savings. This incremental value created by our transaction is the “premium” for Newmont shareholders.
How will the $7 billion estimated synergy value be realized in the share price if the Barrick/Newmont deal is completed?
Barrick has estimated that the $7 billion NPV (pre-tax) of synergies should result in a 14% improvement in the NAV per share for Newmont shareholders. One of the metrics that the market uses in valuing senior gold producers is a multiple of NAV or “P/NAV”. Currently, Barrick and Newmont’s P/NAV multiples are around 1.4 to 1.5. On this basis, Barrick expects that the improvement in its share price pro forma for a combination with Newmont could be in the range of 15% to 20%.
Newmont is saying that the Barrick proposal is at a discount to Newmont’s trading price. Is that true?
Similar to other all-share merger transactions, Barrick’s proposed share exchange ratio was determined based on the 20-day volume weighted average price of Barrick and Newmont shares and, in this case, as of the close of markets on February 20, 2019. On February 21, 2019, the market price of Newmont shares was affected by rumours of a possible Barrick offer and, on February 22, 2019, media articles substantiated these rumours with comments from unspecified “sources” speculating on details of a transaction. Barrick issued a press release before market opening on February 22, 2019 confirming that it had reviewed the opportunity to merge with Newmont in an all-share nil premium transaction and that no decision had been taken. As a result, Newmont and Barrick’s trading was materially impacted on February 21, 2019 and February 22, 2019, and the trading volume increased significantly, particularly on February 22, 2019.
How can Newmont shareholders be sure they will get the benefit of these synergies and thus, a premium?
At the proposed exchange ratio, Newmont shareholders would receive approximately 44% of the pro forma combined company and share proportionately in the $7+ billion NPV (pre-tax) of synergies that Barrick estimates would result from this transaction. About $4.7 billion of the estimated $7+ billion 22 NPV (pre-tax) of synergies is expected to come from Nevada, where Barrick and Newmont own the vast majority of the gold assets and processing facilities, many of which are in close proximity to each other. Rationalizing these operations under unified ownership and a single management team will result in tremendous efficiencies and cost savings. Both companies are very familiar with the operations of the other, and the potential for improved efficiencies as a combined operation is well known to Barrick and Newmont’s employees who work in Nevada. The other expected synergies (outside Nevada) are readily identifiable and attainable, including reductions in corporate and regional G&A through elimination of redundancies and decentralization.
How were the Nevada synergies calculated and why is Barrick so confident they can be delivered?
The opportunity for significant synergies by combining with Newmont’s Nevada operations is well understood by Barrick. Barrick’s experienced Nevada team conducted an extensive bottom-up study of synergies and also identified other potential opportunities that are not included in the estimated $500 million in annual pre-tax savings. Therefore, Barrick believes the synergy estimates are not only achievable, but conservative.
Why is Barrick calculating the NPV of synergies based on a 20-year period when mine lives might be shorter?
The average mine life (weighted by NAV) for the combined assets exceeds 20 years. Doing the same calculation and including only the first 10 years, the estimated NPV (pre-tax) of the synergies would exceed $5 billion. Newmont also used a 20-year period in calculating the NPV of the synergies Newmont estimated for the Goldcorp transaction.
Is the Barrick proposal better than the Goldcorp transaction for Newmont shareholders?
Yes, absolutely. Barrick has estimated that a merger with Newmont would generate synergies averaging more than $750 million per year over the first 5 years. That is more than 7.5 times the $100 million of annual synergies estimated by Newmont for its proposed acquisition of Goldcorp. In addition, a Barrick/Newmont combination creates by far the world’s best gold company and upgrades Newmont’s asset portfolio with the addition of at least 5 Tier One gold assets. Barrick believes the proposed Newmont/Goldcorp transaction would dilute the quality of Newmont’s asset portfolio, as Goldcorp only has one Tier One gold asset in its portfolio, which is majority owned and operated by Barrick.
Why not do a JV with Newmont in Nevada, rather than take over Newmont?
To realize the full potential of combining Barrick and Newmont’s operations in Nevada requires a one owner mentality in order to run the operations efficiently and effectively. A Nevada JV would not enable the full realization 23 of synergies due to duplicate administration, conflicting priorities and cumbersome governance. By their own admission, Newmont has never prioritized realizing the joint benefits of combining with Barrick’s operations. Based on analyst consensus estimates, the NAV of Barrick’s Nevada assets is approximately 70% larger than Newmont’s ($8.3 billion vs $4.9 billion) in part due to Barrick owning much higher grade and lower cost assets. Despite this, Newmont has previously insisted that any partnership would need to be equal ownership and with Newmont as operator. Furthermore, Barrick’s experience with Newmont as a joint venture partner suggests that is not a transaction that would maximize value for either party. As a result, negotiations with Newmont over the years have not been fruitful and do not give us confidence that a suitable JV or similar transaction can be implemented. Most importantly, a Nevada JV does not enable the full realization of additional synergies that would result from a full corporate merger with Newmont, including over $2 billion NPV (pre-tax) of other synergies including those from reductions in corporate and regional G&A and through the elimination of redundancies and decentralization.
Who is going to be CEO of the combined Barrick/Newmont and what is the CEO’s commitment to deliver on the estimated synergies?
Mark Bristow will be the CEO of the combined company and he publicly stated in Barrick’s year end results conference call that he is committed to stay for at least 5 years. Gary Goldberg, the current CEO of Newmont announced he is retiring in June of this year. Mark Bristow is also the only gold mining CEO who has been named among the 100 bestperforming CEOs in the world for three successive years by the Harvard Business Review.
Is Barrick capable of running a global mining portfolio such as Newmont’s?
Barrick is very confident that it can successfully operate the combined Barrick/Newmont portfolio. Barrick is already very much a global mining company with assets in North and South America, Africa and Australia. Barrick currently operates in every jurisdiction where Newmont has a presence with the exception of Australia, where Barrick has a joint venture with Newmont as the operator. Newmont’s operations in Australia are mature and are run by an experienced mine management team who would continue to oversee those operations after the merger.
Why is it a condition of Barrick’s proposal that Newmont’s acquisition of Goldcorp not be completed?
Barrick is not interested in a merger with a combined Newmont/Goldcorp as Goldcorp’s assets would dilute the quality of Newmont’s asset portfolio, and hence would dilute the quality of Barrick’s portfolio.
How many Newmont shareholders are required to vote in favour of the Goldcorp deal for it to be approved?
The Newmont shareholder approval is not based on number of shareholders. In order for Newmont to authorize the additional share capital required for the Goldcorp transaction, a majority (greater than 50%) of the outstanding shares of Newmont must be voted in favour for it to be approved.
Is the “proposal” from Barrick an offer that shareholders can accept today?
On Monday February 25, 2019, Barrick publicly disclosed that it had delivered a letter to the CEO and Chair of Newmont expressing its interest in merging with Newmont in an allshare at-market merger transaction. This type of transaction requires the participation of Newmont and to date we have not had a formal response from Newmont’s Board of Directors.
Does Newmont have to pay a $650 million “break fee” to Goldcorp if Newmont’s shareholders vote against the Goldcorp deal?
No. Newmont negotiated a deal to acquire Goldcorp and the break fee was part of the negotiation. This fee is payable by Newmont in certain circumstances, including where Newmont’s Board of Directors decides to change its recommendation and not support the Goldcorp deal. However, no break fee is payable simply by virtue of Newmont’s shareholders voting against the Goldcorp deal. The break fee may be payable if Newmont is subsequently acquired by Barrick or someone else within a specified timeframe.
Isn’t this deal “too much too soon” given that Barrick just acquired Randgold in January?
No. The Barrick/Randgold transaction was announced in September 2018 and was the culmination of several years of discussions between Mark Bristow and John Thornton. Planning for the integration began on announcement and thus, the integration process has moved very quickly postclose. The management team and key roles and responsibilities have been settled, the restructuring of Barrick’s Toronto headquarters is complete and numerous operational efficiencies are being delivered. Mark Bristow, Barrick’s CEO, is fully engaged with Barrick’s operational teams and has visited all of Barrick’s key assets (some twice). Barrick’s portfolio optimization program is well advanced, where core assets are being optimized and various divestment processes are well under way. Barrick believes the Randgold operations and management are now substantially integrated.
What will the dividend payment be for the combined company?
As a combined company, Barrick’s intention would be to match Newmont’s annual dividend of $0.56 per share which, based on the proposed exchange ratio, will represent a pro forma annual dividend of $0.22 per Barrick share (compared to the current annual dividend of $0.16 per Barrick share).
Will the transaction require a Barrick shareholder vote?
Yes. Approval by a majority of the Barrick shares present and voting at a meeting of Barrick shareholders is required in order to issue the requisite number of Barrick shares to complete the acquisition.
What regulatory approvals are required? Do you anticipate any regulatory opposition?
The Barrick / Newmont transaction will require customary regulatory approvals in a number of key jurisdictions including the United States, China, Australia, and Germany. We do not expect significant delays or hurdles in obtaining the required clearances.
If the Barrick/Newmont deal proceeds, where will the merged company be listed?
Barrick is listed on the New York Stock Exchange and the Toronto Stock Exchange. These listings will be maintained.
Newmont claims that its shares have outperformed Barrick’s by a wide margin. Is that true?
No. Newmont has used convenient time periods to compare share price performance. They have ignored the fact that Barrick completed a $6 billion transformational value accretive merger with Randgold. Since the announcement of the Randgold merger in September 2018, Barrick shares have outperformed Newmont shares by 20%. If we were to consider longer term pre-merger statistics, Randgold shares have outperformed those of Newmont by 480% since 2006.
Would a Barrick Newmont merger be good for Nevada?
Yes. 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.