Barrick Gold Corp. contends the company’s bid for Newmont Mining Corp. announced Feb. 25 is logical. Newmont Mining Corp. disagrees. Such a merger would create a mega gold producer, worth about $42 billion, and northeastern Nevada could feel the impact.
“This is a big deal. Of course, they’ve talked about it before. This one seems a little bit different, a little more hostile,” said John Dobra, who followed the mining industry in Nevada for years and recently retired as an associate economics professor at the University of Nevada, Reno.
Barrick’s proposal is an $18 billion stock deal that the market is considering hostile because Colorado-based Newmont has a $10 billion merger in the works with Goldcorp Inc. and has labeled Barrick’s offer as unsolicited and a negative premium proposal. Barrick wants Newmont to drop the Goldcorp deal.
Toronto-based Barrick merged with Randgold Resources on Jan. 1 of this year in a $6.1 billion acquisition. Barrick’s chief executive officer, Mark Bristow, said in a conference call that the merger proposal is based on a “sound business rationale.”
Barrick’s “proposal will create more value than any other combination in our industry, realizing over $7 billion in synergies alone, and that is before any full potential benefits of us operating their mines is considered,” Bristow said.
He said the merger with Newmont “would allow us to tear down $5 billion worth of fences” in Nevada.
“Nevada is the crux of our proposal, because that is where the bulk of the synergies can be realized,” Bristow added.
Elko Mayor Reece Keener said that “operationally, a merger of the two companies may make financial sense, and that’s why the proposal has been resurrected so many times. Practically speaking, as an elected leader of the Elko community, competition is a good thing, and that’s why we currently enjoy the two major miners.
“A single mining behemoth would remove much of the competition for talent and potentially put downward pressure on wages, and it would certainly squeeze the supplier community,” Keener said in an emailed statement.
“These companies are each so large that they already enjoy enormous economies of scale. The entire region has benefitted from two major miners, and consolidation into one operator could bring about adverse effects in our community,” he said.
One of the impacts of a merged Barrick and Newmont could be jobs, but Dobra said they would mainly be at the upper level, and “operational people are very safe.”
Newmont currently has about 5,000 employees and contractors in North America. Barrick has 3,780 employees in Nevada.
“Consolidating Carlin and Nevada operations – that’s the part that makes a lot of sense,” Dobra said.
He said there “probably would be some redundancy in logistics and supply, but that’s where you get some savings.” Newmont and Barrick already have a working agreement on the Turquoise Ridge Mine in Humboldt County. Barrick operates the mine and owns 75 percent. Newmont processes the ore and owns 25 percent.
The companies also worked out an agreement years ago over the Betze-Post open pit on the Carlin Trend, as another example.
Newmont Chief Executive Officer Gary Goldberg said in a presentation at the BMO Global Metals & Mining Conference in Florida that he agreed with Barrick “that jointly operating our collective assets in Nevada represents a compelling value opportunity for all of our shareholders, but there is no reason to bear the risk from Barrick’s other assets.”
He said Newmont remains willing to talk about joint ventures in Nevada.
In Nevada, Barrick operates surface and underground mines on the Cortez Trend, surface and underground mines on the Carlin Trend, and Turquoise Ridge. Newmont has the Twin Creeks Mine near Turquoise Ridge, underground and surface mines on the Carlin Trend, Emigrant Mine southwest of Carlin, Phoenix Mine near Battle Mountain and Long Canyon Mine near Wells.
Dobra said property taxes wouldn’t be affected by the merger of Newmont and Barrick.
“I don’t think the counties have anything to worry about,” he said.
In Elko, Newmont’s offices have been the North American headquarters, but the headquarters would move to Vancouver under the Goldcorp deal. Barrick relocated headquarters for North American operations to Las Vegas a few years ago but still has an office complex in Elko.
In Monday’s phone conference, Bristow said Barrick wants the merger to take place before the Goldcorp merger with Newmont because “we don’t want Goldcorp’s low-quality assets.”
Goldberg said in his BMO presentation that Newmont has looked at Barrick in the past and isn’t interested.
“Let me be clear, we remain confident in our ability to deliver superior value for our shareholders. Our team has a proven track record of successfully managing and operating a global mining portfolio, delivering shareholder returns of 65 percent compared with Randgold’s anemic 9 percent and Barrick’s shocking negative 22 percent over the same period,” he said.
Shares of both Newmont and Barrick were down with Barrick’s latest move. Barrick’s closed at $16.60, down 53 cents. Newmont’s shares ended at $36.10, down 38 cents. Goldcorp shares closed at $11.06, down 70 cents.
Goldberg also maintained in the BMO presentation that Newmont has global and management experience that Barrick doesn’t have since the current Barrick team has only been together since the Randgold merger was final. Bristow was CEO of Randgold.
He also slammed Barrick over the company’s “behavior this morning,” in proposing the hostile takeover, and promoted Newmont’s plan to merge with Goldcorp and become Newmont Goldcorp.
Barrick CEO Mark Bristow said the merger with Newmont “would allow us to tear down $5 billion worth of fences” in Nevada.