One of the worst kept secrets in the mining industry is the talk of a merger between Canada’s Barrick Gold and Newmont Mining of the United States. Multiple reports have surface that the talks between two of the world’s largest gold producers have stalled but could be on again as soon as later this week or next.
What a super-miner the combined company would be! The market value would be almost US$33 billion. It would have operations on five continents, and a gold output of well over 12 million oz a year.
Reports say the two companies had agreed on an all-stock merger with Barrick offering the equivalent of 13% above the average Newmont stock price over the past 20 trading days.
The sticking point appears to be an inability for the two companies to agree on which assets to spin out after a merger. Should the gold and copper operations be separated? Or should the spinout be geographical: Australia and Oceania?
Gold miners have endured a 29% drop in the price of gold during 2013, and that has hurt all their bottom lines. Barrick for example has recently divested several properties (Plutonic, Kanowna, and Marigold), cut back development (Pascua-Lama), and made a $3-billion equity offering. Revenue fell to $12.5 billion in 2013 from $14.4 billion in 2012, and impairment charges are piling up to more than $2.8 billion for last year.
Newmont’s revenue also dropped, totalling only $8.3 billion in 2013 compared to $9.9 billion in 2012. The company also divested $600 million in non-core assets (Midas and a minority interest in Paladin Energy) and reduced its dividend.
There are synergies to be had by a combined company, particularly in Nevada where they often operate adjacent properties. A quick estimate of the potential savings seems to be $1 billion based on the US mines.
At press time on Monday, neither company had issued any information on the proposed merger, so it remains officially a “rumour”. However, with annual meetings for both companies coming up soon (Newmont on April 23 and Barrick on April 30), they may be under pressure to get a deal worked out sooner rather than later.