ELKO – With the upcoming joint venture between Barrick Gold Corp. and Newmont Mining Corp. that puts Barrick in the operator seat for Nevada operations, Elko Mayor Reece Keener said suppliers who were in shock are now realizing changes are ahead.
“I think we are beginning to accept the fact that major changes are coming. Initially, fear, uncertainty and doubt were running rampant. Now that some time has elapsed, and the shock has worn off, I think there’s a growing realization of the fact that there will be significant changes in the JV’s supply chain that will impact Nevada vendors,” he said.
“The onus will be on suppliers to adapt to the new environment to optimally position their goods and services offerings to best compete,” Reese said.
“As a longtime vendor to both Barrick and Newmont, I’m a stakeholder that’s definitely concerned about the outcome. However, my comments and perceptions flow from my perspective as Elko mayor,” he said in an April 5 email.
Keith Jones, general manager of Small Mine Development, a company that specializes in underground mining, said he has heard vendors talk about the joint venture, and companies that work only for Barrick or Newmont “wonder how it will play out for them.”
“People are concerned, and in some cases, there is optimism,” he said.
Keener said he suggested to Barrick’s management team that the Nevada Mining Association host a “town hall” for suppliers to provide more information on the joint venture and give them a chance to ask questions.
Barrick and Newmont reached an agreement announced March 11 for a joint venture in Nevada, but it hasn’t gone into effect yet. Vendors likely won’t know for months whether their businesses are impacted. Barrick dropped a push for a merger of the two companies when the joint venture agreement was reached.
Barrick is “quite focused on advancing completion of the joint venture agreement at the moment,” said Andy Lloyd, a spokesman for the Toronto-based company.
Newmont spokesman Omar Jabara said it would be at least a month or two before the joint venture agreement is finalized.
Under the agreement, Barrick will have 61.5 percent ownership and Newmont 38.5 percent of the joint venture for their Nevada mines. The companies expect pre-tax synergies of $500 million a year.
Keener said that when he met with Barrick Chief Executive Officer Mark Bristow in Elko, he felt Bristow “has a desire to deal locally and a genuine concern for the host community’s welfare.” The mayor also said Bristow is aware of the “massive economic footprint that the JV will have in our region and the responsibility that comes with that.”
Bristow spoke at a community meeting in Elko on March 11, the day Barrick and Newmont announced the joint venture that covers Barrick’s Cortez, Goldrush, Goldstrike, South Arturo and Turquoise Ridge mines and Newmont’s Carlin, Long Canyon, Phoenix, Twin Creeks and Lone Tree mines. Barrick’s Fourmile and Newmont’s Mike and Fiberline exploration projects aren’t part of the joint venture now but could be added later.
“We’re part of Nevada, and we would like to be your partner in the future,” Bristow told the gathering.
SMD’s Jones said the company hasn’t had any communications yet from Barrick or Newmont on how the joint venture is progressing, but SMD works with both companies in northeastern Nevada.
“We are optimistic that our safe, productive and innovative underground mining solutions will remain an important part of the JV. We value the relationships that have been cultivated with both companies and their personnel over the years and look forward to working with the JV,” he said.
“Our intention is to continue the work we are doing at each of the properties we are contracted with and make sure our employees are going home safe and uninjured at the end of each shift,” Jones said.
Jeff Olsen, president and chief executive officer of Boart Longyear, a drilling company with long ties to Nevada, is optimistic about the joint venture.
“We have confidence that combining the strengths of both companies in Nevada will unlock long-term value for all stakeholders, including employees and surrounding communities, as well as shareholders. We have a tremendous amount of respect for both Newmont and Barrick, and the ability of the combined teams to generate further opportunities for one of the world’s best gold resources,” he said in an email statement.
“We certainly believe that to understand and optimize this value, more drilling will be required, which is also good for Boart Longyear,” Olsen said.
The upcoming joint venture is “not affecting us at all,” said Lyle Beckwith, field service coordinator for Redi Services LLC. “If anything, it has helped us. We’re busy.” Redi provides services to both Newmont and Barrick operations.
Keener said vendors will “only find comfort once they have purchase orders and contracts with the joint venture.”
A dozen or so vendors contacted by the Elko Daily Free Press didn’t want to comment on the joint venture or didn’t return messages.
“I’m not at all surprised at the hesitancy for vendors to go on record with comments, as it carries the potential of risk,” Keener said.
The joint venture may save money through new deals with suppliers, but Barrick and Newmont are looking at other avenues for synergies.
Bristow said on March 11 savings would include in warehousing, railheads and roads, and more direct travel routes, as well as the money the companies now spend checking on each other. He also said there would be savings of the processing premium Barrick pays Newmont in a current joint venture for the Turquoise underground gold mine in Humboldt County. Barrick operates the mine and owns 75 percent. Newmont owns 25 percent and processes the ore at its nearby Twin Creeks Mine.
Bristow said there is potential savings with all the ore trucks driving back and forth on the highways, and restructuring operations in Nevada would increase mine life by allowing more mining of lower grades that would in turn boost profit.
Money also could be saved in reaching new deposits by crossing each other’s land, the CEO said.
The Elko mayor spoke out in February against Barrick’s push for a merger. At that time, he was concerned that a “single mining behemoth would remove much of the competition for talent and potentially put downward pressure on wages, and it could certainly squeeze the supplier community.”
He said in the April 5 email he has similar concerns with the joint venture.
“There will still be robust competition for skilled talent, but the opportunity for lateral movement (for higher compensation) and workforce mobility between the two major operators will be gone. The principals of economics would logically indicate that this will place downward pressure on wages and wage growth,” Reece wrote.
He said the same would be the case for supply-chain economics with larger contracts with thinner margins resulting in less “room” for wage inflation.
The mayor also said an “unfortunate, unavoidable” impact from the joint venture will be the displaced management and administrative personnel, and “my heart goes out” to those who will be affected.
Bristow said on March 11 that impact to the workforce should be minimal, with some reduction in overlapping management.
“It makes no sense for Newmont and Barrick to seek to get rid of any expertise,” he said.
Keener said Bristow will want the Newmont-Barrick joint venture to succeed.
“With the entire industry watching, the management team will be compelled to successfully execute a complex integration that will satisfy investors, analysts, employees and the host communities of Nevada,” he said.