Offer to create world’s largest gold miner descends into spat

Article by Adam Duckett

A WAR of words has broken out between the leaders of Barrick Gold and Newmont Mining after the latter rejected a US$18bn hostile offer to create the world’s largest gold miner.

Responding to an unsolicited takeover from Barrick Gold, Newmont mining issued a statement saying its existing agreement to merge with Goldcorp was better for shareholders “on all relevant metrics”. Alongside the press release announcing the rejected offer, the company published a letter sent to the Barrick board from Newmont Chair Noreen Doyle that candidly derides the performance and culture of Barrick.

“Since previous merger discussions terminated in 2014, Newmont has significantly outperformed Barrick on almost every metric,” the letter reads.

“Barrick’s underperformance highlights its ineffective operating model, poor record on delivering stockholder returns, and significant jurisdictional risk…Barrick’s expressed disdain for process and oversight, and its absence of diversity of leadership, including in its board room, runs contrary to the expressed values of Newmont.”

Barrick said its plans for a merger are superior to the Goldcorp agreement, calculating that it would create US$7bn in savings, chiefly from combining its mineral rights and Newmont’s processing plants in Nevada.

Newmont argued that the deal was inferior to its existing agreement with Goldcorp, set to be voted on by shareholders in Q2 this year, and instead made a counteroffer that the two firms form a joint venture for their Nevada assets. Based on figures from analysts, Newmont said it should hold 45% of the venture and Barrick 55%.

Mark Bristow, CEO of Barrick, said the proposal “reinforced the frustration” of previous efforts to unlock the value in the two company’s Nevada assets, and put down plans to jointly operate the venture.

“Nevada, with a combined 76 million ounces, will be worth a whole lot more if it is run by one operator. We know we can do that more efficiently than Newmont, and that it will be worth a lot more to both Newmont and Barrick shareholders under that scenario,” Bristow said. He added that the ownership should be more firmly in Barrick’s favour at 63%.

Joe Foster, Fund Manager at Van Eck – one of the largest shareholders in both Barrick and Newmont – told The Financial Tmes that his first choice would be for the firms to merge their Nevada assets into a joint venture. He has not opposed the complete merger of the two companies but did raise concerns about the skills needed to manage so many mines if such a mega-merger went ahead.

This comes amid consolidation among the larger players in the gold mining sector, with Barrick completing its US$6bn buyout of Randgold earlier this year, and the US$10bn deal between Newmont and Goldcorp agreed in January.

Article by Adam Duckett

Editor, The Chemical Engineer

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