Gold giants’ merger talks hit hurdles over assets

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David Welch, Matthew Campbell and Liezel Hill

Talks to merge the world’s biggest gold mining firms, Barrick Gold and Newmont Mining, broke down late last week amid minor disagreements that left open the possibility that a deal could be revived, two people with knowledge of the matter said yesterday.

The companies had agreed to an all-stock merger and planned to announce the deal this week, the people said, asking not to be identified discussing private information. Barrick was to offer Newmont shareholders a premium of 13 percent more than Newmont’s average share price over the latest 20 trading days, one of the people said.

The companies had agreed to all terms not related to a spin-off of Australian and New Zealand assets, the person said.

They had identified $1 billion (R10.5bn) a year in cost savings, mostly from their mines in Nevada, the people said. Toronto-based Barrick and Newmont of the US have a combined market value of about $33bn and operate on five continents. The merger talks follow gold’s 28 percent plunge last year, the most in three decades, which squeezed profits and spurred at least $30bn of write-downs by bullion producers.

The merger plan hit a snag only when Barrick and Newmont failed to come to a complete agreement on which mines to include in the spin-off, the people said.

Unable to finalise a deal before a self-imposed deadline yesterday, the firms instead agreed to call off the plan for now, they said.

Both companies wanted to have a deal announced before their annual meetings, the people said. Newmont’s meeting is scheduled for tomorrow and Barrick’s for next week. The two had tried to merge several times in the past and still had interest in getting a deal done, the people said.

Spokesmen for Barrick and Newmont both declined to comment on the merger talks. The breakdown in the latest talks was first reported by the Wall Street Journal.

The success of the latest potential merger would depend on the value of the spin-offs and the enlarged company achieving the envisaged cost savings, Greg Barnes, an analyst at TD Newcrest in Toronto, said.

“Without the savings, we see little merit in merging the two companies since production growth would remain challenging and the combined balance sheet would carry significant net debt,” he said.

Under the most recent merger plan, the combined company’s chief executive would have been current Newmont chief executive Gary Goldberg, while Barrick co-chairman John Thornton would have been executive chairman. Newmont chairman Vince Calarco was set to become a lead director of the new company, while Barrick chief Jamie Sokalsky was to run the new spin-off.

The combined firm would have been based in Toronto while keeping an operating headquarters in Colorado, where Newmont has its head office, according to the people.

The purchase of Newmont would have been a dramatic final move by Barrick founder and chairman Peter Munk, who is due to retire at the April 30 shareholders meeting. He will be succeeded by Thornton, a former Goldman Sachs president.

Munk has pursued big deals in the past, including Barrick’s 2006 acquisition of Placer Dome for $10.2bn, which made it the biggest gold producer in the world. That deal remains a record for the gold industry.

Barrick and Newmont held merger talks in 1991 and 2000, according to the book Going for Gold: the History of Newmont Mining Corporation by Jack Morris.

Further discussions had taken place since 2009, a person with knowledge of the discussions said last September.

Based on the latest discussions, the merged company would have a 14-person board comprising seven people from Barrick, five from Newmont and two new directors, one of the people said. Talks could resume soon, though no agreement was likely before Barrick’s annual meeting, with the company due to gain new directors who would then have a chance to weigh in on a deal, the people said.

Both companies have made leadership changes in the past two years. Sokalsky was promoted from chief financial officer in 2012 while Goldberg, who joined Newmont about two years ago, became chief executive in March last year, replacing Richard O’Brien. Sokalsky is a 20-year veteran of Barrick, while Goldberg worked at diversified mining house Rio Tinto before he joined Newmont as chief operating officer.

Barrick operates mines in Argentina, Chile, Canada, Australia, the Dominican Republic, Papua New Guinea, Peru, the US and Zambia. It also owns 64 percent of African Barrick Gold, a producer in Tanzania that was spun out of Barrick in 2010, and has a stalled mine in Saudi Arabia. Newmont operates in the US, Australia, Peru, Indonesia, Ghana, New Zealand and Mexico.

Barrick and Newmont already jointly own the Turquoise Ridge mine in Nevada, with Barrick controlling 75 percent. They are also 50-50 partners in the Kalgoorlie mine in Australia.

They both produce more than a third of their gold in Nevada, from which they originally built their businesses, and where Sokalsky has described the firms as “next-door neighbours”. – Bloomberg


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