A truck waits for ore at Newmont Mining Corp's copper and gold mine on Indonesia's Sumbawa island, in this file picture taken September 21, 2012.Reuters
A hostile bid for Newmont Mining Corp. may force its shareholders into a tough decision: proceed with plans to acquire and turn around an industry laggard, or be swallowed by a long-standing rival.
Barrick Gold Corp. confirmed Friday that it has examined an all-stock takeover offer to acquire Colorado-based Newmont. Toronto-based Barrick said the bid it was contemplating would not contain a takeover premium, but the news sent Newmont shares 3 per cent higher, indicating some investors believe a formal offer will come.
Earlier: Barrick eyes hostile bid as Newmont set to become No. 1 gold producer
The Globe and Mail reported Thursday that Barrick is mulling a US$19-billion takeover of Newmont that would involve the company flipping some Newmont assets to another company, possibly Australia’s Newcrest Mining. Bloomberg also reported Thursday night that Barrick had studied a bid.
A successful takeover by Barrick of Newmont would thwart the latter’s plan to acquire Vancouver-based miner Goldcorp Inc. in a US$10-billion deal announced last month. Newmont says it can save US$100-million a year by combining with Goldcorp, and hopes to be able to turn around the miner. Goldcorp and Newmont shareholders are scheduled to vote on the union on April 4.
“We do not intend to speculate on Barrick’s interest or motivation,” a Newmont spokesperson said in an e-mailed statement on Friday. “We remain confident that the combination of Newmont and Goldcorp represents an unparalleled opportunity to create value for our shareholders and deliver industry-leading returns for decades to come.”
A deal with Barrick, however, may be attractive to some Newmont shareholders because the companies have adjacent mines in Nevada that likely could lead to substantial cost savings through shared operations. And a combined Barrick and Newmont would be by far the world’s largest gold miner, producing more than 10 million ounces of the metal a year while creating a must-own company for many gold investors.
In the end, if Barrick floats a formal offer, it will be up to Newmont shareholders to decide which deal they like best. The U.S. miner does not have a controlling shareholder; about 25 per cent of Newmont’s stock is owned by two large U.S. index-fund providers, BlackRock and Vanguard Group.
The last time the global mining industry went through a cycle of large-scale M&A, premiums in the 30-per-cent to 40-per-cent range were common. But Barrick’s recent takeover of Randgold Resources Ltd. was done with no premium, in a friendly transaction.
With Newmont, however, Barrick may have no choice but to go hostile. According to a regulatory document, while Newmont is actively trying to close its acquisition of Goldcorp, it isn’t allowed to engage in takeover negotiations with another party unless it receives an offer that the board sees as favourable.
“It would be pretty ballsy” for Barrick to forge ahead with a bid for Newmont, said Maggie Bishop, analyst with United First Partners, a New York-based firm that specializes in advising clients on special situations and arbitrage opportunities.
“This would be a positive for Newmont, as an alternative to it acquiring Goldcorp at a premium,” Jefferies analyst Christopher LaFemina wrote in a note to clients.
Newmont’s acquisition of Goldcorp would be “value destructive” in the short term, Mr. LaFemina said, and would only work longer term if it can deliver on Goldcorp’s strategy to cut costs, and expand both its reserves and production.
Sources told The Globe that Barrick is working on a two-pronged approach that would see it buy Newmont, but then immediately sell up to US$5-billion in Australian assets, possibly to Newcrest Mining Ltd., which is based in Australia and has significant operations there. An industry source said that Newcrest’s participation has yet to be firmed up, but Barrick is also talking to other companies about the Australian mines.
The big prize for Barrick is Newmont’s coveted Nevada assets, which are located in the same region as Barrick’s largest mines. Cost savings from sharing facilities that process millions of ounces of gold a year are thought to be worth in excess of US$1-billion, a figure that dwarfs the savings touted by Newmont in its combination with Goldcorp.
Analysts also have faith in Barrick’s new chief executive, Mark Bristow, who came into the company only six weeks ago after more than 20 years of managing Randgold, which was seen as one of the best-run mining companies.
“Mark Bristow is highly regarded and would likely drive significant cost cutting at Newmont and shrink the Newmont portfolio by divesting non-core assets,” Mr. LaFemina wrote.
Barrick and Newmont tried unsuccessfully to get a deal done before. A 2014 plan that would have seen Barrick buy Newmont was called off at the 11th hour after the two were unable to reach an agreement on who would run the company and after the miners clashed on where the headquarters of the combined company would be located. In the aftermath, both companies issued press releases blaming the other for the failure to get over the finish line.
Gold reserves at major producers
By fiscal year, in millions of troy ounces
2012
2018
140.2m
Bump from
Randgold
deal
99.2m
Barrick
75.3m
67.1m
Newmont
65.4m
59.6m
Goldcorp
52.8m
Kinross
25.5m
Agnico Eagle
22m
18.7m
MATT LUNDY, THE GLOBE AND MAIL, SOURCE: COMPANIES
Gold reserves at major producers
By fiscal year, in millions of troy ounces
2012
2018
140.2m
Bump from
Randgold
deal
99.2m
Barrick
75.3m
Newmont
65.4m
67.1m
59.6m
Goldcorp
52.8m
Kinross
25.5m
Agnico Eagle
22m
18.7m
MATT LUNDY, THE GLOBE AND MAIL, SOURCE: COMPANIES
Gold reserves at major producers
By fiscal year, in millions of troy ounces
2012
2018
140.2m
Bump from
Randgold deal
99.2m
Barrick – 75.3m
67.1m
Newmont – 65.4m
59.6m
Goldcorp – 52.8m
Kinross – 25.5m
Agnico Eagle – 22m
18.7m
MATT LUNDY, THE GLOBE AND MAIL, SOURCE: COMPANIES
Niall McGee