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TIM BURMEISTER

Mining Quarterly editor

“This is huge,” Newmont Goldcorp Regional Senior Vice President Andrew Woodley said at a Barrick-Newmont joint venture update reception in Elko on May 9.

These past six months have been a time of huge news in the mining industry in northern Nevada. Barrick Gold and Newmont Mining, the two big, longtime players in mining in the region, after many years of dancing around the possibility of joining together in one way or another, finally agreed to form a joint venture to work together on mining their Nevada assets.

When it finally happened, it happened fairly quickly.

A quick history

In the fall of 2018, Randgold Resources, an Africa-focused gold mining company, agreed to an all-share merger with Barrick. The merger went into effect Jan. 1 of this year, and Randgold CEO Mark Bristow became the new CEO of Barrick.

According to a March 18 article by Gabriel Friedman in the Financial Post, in January Bristow and Newmont CEO Gary Goldberg corresponded about the possibility of working together in Nevada in some way.

“We had favorable email exchanges right until the end of January,” Goldberg said.

In the meantime, Newmont had been working toward a merger with Goldcorp, another large gold company with mines in Canada, Mexico and Central and South America. In January, Newmont announced a proposal to pay a 17 percent premium for Goldcorp. Newmont’s share price dropped 11 percent the day the deal was announced.

The Financial Post story reported that “Bristow said the poor reaction created an opportunity and he pounced.”

On Feb. 25, Barrick announced an $18 billion hostile all-share negative premium bid to take over Newmont.

Things got a little ugly for a little while after that. Newmont’s board unanimously rejected the proposal, and Goldberg called the takeover offer “desperate” and “bizarre.”

Bristow said the deal made sense because of the $4.7 billion in savings from synergies the companies would see in Nevada over the next 20 years.

Newmont submitted a joint venture proposal to Barrick that would encompass the two companies’ Nevada operations. A presentation on Barrick’s website said, “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.”

But then on March 5, two weeks after the hostile takeover bid, Bristow flew to New York and met with Goldberg to talk about the possibility of a joint venture in Nevada.

“I told him we can do this, but the drop dead date is Sunday,” Bristow said.

That was on a Tuesday. The next day, Goldberg and his Newmont team met with Bristow again. The paperwork for a joint venture was put together in time for a Sunday night signing.

The next morning, March 11, Bristow was in Elko for a breakfast reception to announce the joint venture to the community.

Nevada Gold Mines

Two months later, on May 8, the name of the new joint venture was announced: Nevada Gold Mines.

The mines in the joint venture will include Barrick’s Cortez, Goldrush, Goldstrike, Turquoise Ridge, and South Arturo, and Newmont’s Carlin, Long Canyon, Phoenix, Twin Creeks and Lone Tree.

These mines produced a total of just over four million ounces of gold last year.

“That makes this the largest single gold producing complex in the world by a magnitude,” Bristow said. “The next biggest is just under two million ounces. So it’s very significant.”

In second place is the Olimpiada Mine in central east Siberia in Russia, which produces 1.3 million ounces of gold.

Nevada Gold Mines, if it was ranked as a gold company, would be in third place, behind Barrick with 5.7 million ounces and Newmont with 5.1 million ounces of gold, although Nevada Goldcorp will now produce more than that.

In 2018, Barrick produced 2.3 million ounces of gold at its Nevada mines, and Newmont produced 1.7 million ounces of gold at its Nevada mines, along with 32 million pounds of copper at its Phoenix mine south of Battle Mountain.

Bristow said in May that just over 7,000 people are working for the Nevada Gold Mines joint venture in Nevada.

Barrick’s Fourmile project and Newmont’s Fiberline and Mike deposits were not included in the joint venture, since there is still exploration being done at these sites so their valuation is less certain. These sites can be entered into the joint venture at a later date.

The change from a hostile takeover to a joint venture allowed Newmont to proceed with its merger with Goldcorp, which would have been prohibited if Barrick had proceeded with its hostile takeover of Newmont. The merger was completed on April 18, making Newmont Goldcorp the largest gold producer in the world. In the merger announcement, Newmont Goldcorp said it is targeting six to seven million ounces of steady annual gold production over a decades-long time horizon.

Some JV details

The new Nevada Gold Mines joint venture will be owned 61.5 percent by Barrick and 38.5 percent by Newmont, and will be operated by Barrick. Barrick will control three seats on the board and Newmont will control two seats.

Bristow explained during the joint venture announcement on March 11 that the ownership percentages were decided upon by having eight analysts develop valuations of the assets which Barrick and Newmont have in Nevada. The conclusions of the eight analysts were averaged.

Bristow said that although the two companies have similar reserves, Newmont’s reserves are graded at 1.6 grams per ton, whereas Barrick’s are 3.6 grams per ton. Newmont’s resources are less than 1.6 grams per ton, whereas Barrick’s are over 4, which is three and a half times higher than the industry average.

“Both parties had to accept the valuations, which we have,” Bristow said. “And I think that was always the gristle in Nevada. There was the view that one had more value than the other. That’s why over many attempts we didn’t get to a solution, and the only people that really suffered were the shareholders in both companies.”

Although Newmont has generally lower grade ore in Nevada than Barrick does, Newmont has some significant infrastructure that Barrick does not have. Bristow commented around the time of the joint venture agreement that if Barrick did not enter into a joint venture with Newmont it would probably invest in more infrastructure, so being able to use Newmont’s infrastructure results in an immediate synergy savings.

The Nevada Gold Mines joint venture offices will be in the current Newmont Goldcorp office building in Elko. The Barrick office building which is just down the street from the Newmont building will no longer be used.

According to the March 18 Financial Post story, the joint venture agreement includes a two-year standstill that prevents hostile bids between Barrick and Newmont.

Initial JV reactions

During the two weeks that Barrick’s hostile takeover of Newmont looked like a possibility, there was a lot of apprehension in the communities in northern Nevada.

“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 Mayor Reece Keener wrote in an email to the Elko Daily Free Press. “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.”

There was a more positive reaction to the announcement of the joint venture. At the joint venture announcement breakfast, some of the questions asked by members of the public included how the joint venture would deal with unions and the mines’ ranch land. Mayor Keener asked about charitable giving programs.

Still, with the assertion that the Nevada Gold Mines joint venture will result in an average savings of around $500 million per year, people are continuing to wonder: What impact will all of those savings have on the local communities in northern Nevada?

Some people have questioned whether the joint venture really will result in an annual savings of $500 million, but people at Barrick maintain that the savings will be realized. The March 18 Financial Post story quoted Bristow saying, “Despite people going into a stir about whether I can do these things, I’ve shown them that I can.”

This issue of the Mining Quarterly is being published on June 6, and the Nevada Gold Mines joint venture goes into effect July 1, so we will all be learning more details about the joint venture in the weeks and months ahead.

The employees of the two companies will actually remain Barrick and Newmont Goldcorp employees for another six months after the start of the joint venture to give time to set up all the payroll details. Starting on Jan. 1, 2020, everyone will be Nevada Gold Mines employees.

JV opportunities

In an interview following the joint venture update reception in Elko on May 9, Bristow did suggest that there will be a reduction in the number of corporate employees as the joint venture progresses. However, he also said that if anything, the number of people working at the mines will probably go up, and his emphasis was that the joint venture will have lots of benefits for the local communities, including extending the life of the mines.

At the start of the May 9 reception Newmont’s Andrew Woodley said, “I know there are questions, there’s anxiety when change happens, but this is big and it is exciting, and we all have an opportunity to make the future what this community deserves and what our people deserve, and that is an exceptionally strong, successful and profitable goldmine business. There are great resources out there in the ground, and there are great resources in our people.”

Bristow said that when he came to Nevada during the Barrick-Randgold merger, what struck him was the illogical structure of the mining enterprise going on between Barrick and Newmont. He saw trucks driving past a processing facility to go to another facility further away.

“There were just so many things that you could do better,” Bristow said. “With this combination there are so many things that are going to improve the way we operate. And when you improve the way you operate, you drop the cost. And when you drop the cost, you’re able to mine more gold, because then you can mine lower grade. You can mine rock that has less gold in it because it’s costing you less to mine it and process it.”

“We’re mining in Turquoise Ridge, and we truck it three to five miles to Twin Creeks to process it. Twin Creeks was charging the cost plus 45 dollars more. That’s worth about 1.2 grams off the recoveries. So if we take that out, it means that we can drop the grade of the ore that we mine without changing anything, which means that we can increase the reserves, increase the number of times we can mine, and we extend the life of the mine.”

“And there are other benefits that will come out of this,” Bristow said. “With the two companies we will be able to transport further on private roads, and take these big trucks off the public roads, which is also a benefit to everyone.

“And then it’s especially about people,” Bristow said. “As Andrew says, changing times always brings anxiety, but there’s opportunity as well. We are very clear that if we get this job done right, certainly the work force shouldn’t be affected at all.”

“We now own together some of the only processing facilities that can deal with very complex metallurgy,” Bristow said. “And that means that we can go and search for resources and reserves that haven’t been exploited, and we can add that to our portfolio. And the one thing that I can assure you is that — and I’m a geologist by profession — and we are going to go and find gold. This is such an exciting place.”

“People said, we’re going to take away the competition in doing this combination,” Bristow said. “I can assure you, we’re going to encourage competition. We’re going to create different opportunities for multiple transport and other service providers, because that’s our job. We want that. We don’t want to take away competition. We want to build our relationships with the communities, we want to bring business back to Nevada. That’s our job, that’s part of our responsibility now.

“In discussing the press release about this event, we asked, do we say this is ‘new opportunities’ or do we say this is ‘enormous opportunities’? And my vote was for ‘enormous.’

“The opportunities have always been there,” Bristow said. “Everyone just talked about it. This combination was talked about for more than two decades. It’s amazing, everyone talked about it, it was tried multiple times, and it’s like any good thing in life – it eventually gets there. Every time it failed, everyone knew that the logical thing was that it should have happened. So it’s a great privilege to be part of this combination.”

“We are talking about schooling and training and coaching and development of people. That’s what we want to do. We want to go and attract people from this state. We shouldn’t have to go somewhere else. We’ve been mining here now for a very long time. We should be developing our own skilled people, and supplying skills back into the greater American mining industry.

One team

“We’re going to be one team. And when we say that, we include everyone. We want you to feel part of us. There’s no question or criticism that’s not important. We want you to feel free to voice your concerns. I promise you, when you raise issues, we’ll take them seriously, and we’ll work to become corporate citizens that you as Nevada folk will be proud of.

“I look forward to working with all of you. I look forward to getting to know you, and I invite you to join us in this enormously exciting voyage that stands ahead of us.”

Commitment to the business & community

Bristow has said in the past that he likes to keep corporate offices small. In an interview following the joint venture announcement on March 11, he said, “The original Barrick back in the 80s is what I modeled my company on, and that is very entrepreneurial, agile and modern in its thinking, with a very small head office.”

After the May 9 reception Bristow said that five years ago, Barrick had about 500 people at its corporate offices. By the time Barrick and Randgold were talking about a merger last year, that number was down to about 150. Bristow said there are now about 70 people at the Barrick/Randgold offices in Toronto.

“Over the whole organization we’ve taken out about $135 million of people costs between the operations and the corporation. It was just too fat and lazy,” Bristow said.

Bristow said that Randgold, which was a smaller company, only had seven people in its corporate offices.

Bristow said that a problem he has seen in Barrick and Newmont is educated professionals who come and go from top leadership positions. He said this kind of revolving door can undermine the whole workforce.

“I’ve said this to the Barrick team — if you don’t want to be long term participants in our business, you’re not welcome. We’re not going to put up with mercenaries. I’d rather have somebody who works damn hard, and is completely loyal … than somebody who is not a long term player.”

“We want people who are coming out for the long term, and who are very committed to the community, and participating, working with the schools, supporting their children and the community.”

“We’ve got to stop going to work to have a job,” Bristow said during the reception. “We want to go to work because we’re part of a business, a business that creates value.

“Business is about people,” Bristow said. “The bottom line is, if we are going to succeed in this venture it’s going to be through people.”

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