Barrick’s makes hostile bid for Newmont as talks on partnership fall apart

TORONTO—A simmering dispute between world’s two largest gold miners erupted publicly Monday as Barrick Gold Corp. formally made a hostile US$18-billion bid to merge with Newmont Mining Corp. in a plan that would create the undisputed global leader in gold production.

Barrick CEO Mark Bristow, who took on the position in January after the company merged with Randgold Resources, said a combination of Barrick and Newmont was “long overdue” and would be far superior to Newmont’s proposed acquisition of Vancouver-based Goldcorp Inc.

“This is the reason that we have, after some deliberation, decided to make an unsolicited but clearly superior proposal to the Newmont shareholders,” Bristow said.

“We as a team can’t wait until after Newmont and Goldcorp merge, because we don’t want Goldcorp’s lower quality assets in our portfolio.”

In addition to arguing that Barrick’s plan is financially superior, Bristow said on a conference call that Newmont’s plan “strikes me as both desperate and bizarre” because it anticipates the retirement of its veteran chief executive, Gary Goldberg, later this year.

Goldberg, speaking at a mining conference Monday, said Newmont has rejected offers from Barrick because the company has assets that are too risky and a management track record that is too spotty.

He pointed out that while Newmont has seen 65 per cent share gains since early 2014, Randgold, where Bristow was CEO, has seen “anaemic” growth of nine per cent and Barrick a “shocking” loss of 22 per cent.

“We have delivered, they simply have not,” Goldberg said.

Bristow, who has been quick to work on restructuring Barrick to be more nimble and focused on top-tier assets, has pitched the merger with Newmont as a value creator with US$7 billion in synergies over 20 years.

About US$5 billion of those efficiencies would come from Nevada, where both companies have extensive assets that could be complimentary. Bristow said a proposed joint venture between the two companies however fell apart because Newmont was demanding control.

“It comes down on Newmont wanting absolute control in a situation where they don’t bring that sort of value.”

Goldberg said Newmont sees value in a more co-ordinated approach between the two in the state, but has objected to Bristow’s approach. He also singled out for criticism the strategy of Barrick executive chairman John Thornton, who led Barrick in 2014 when the last merger talks between the two companies fell apart.

“We were hopeful that Mark and his team would take a practical and constructive approach to unlocking value in Nevada, doing that with us. Instead they appear to be pursuing the same hostile and value-destructive tactics that their executive chairman has pursued since arriving at Barrick.”

In making the offer hostile by taking it directly to Newmont shareholders, Barrick will let them decide who has the best value proposition.

Under Barrick’s zero-premium proposal, Newmont shareholders would receive 2.5694 Barrick shares for each Newmont share they hold. Barrick shareholders would end up owning 55.9 per cent of the combined company and the rest would be owned by shareholders of Newmont.

Bristow said the synergies that would be created in the deal should be considered the premium.

Barrick said the combined company would also match Newmont’s annual dividend of 56 cents per share which, based on the proposed exchange ratio, will represent a pro forma annual dividend of 22 cents per Barrick share compared with Barrick’s current annual dividend of 16 cents per share.

GMP Securities analyst Steven Butler said Barrick’s case looks clearly stronger than Newmont’s proposed merger with Goldcorp.

“The synergies are compelling, real, and substantial. And they are readily more quantifiable than those identified in the Newmont Goldcorp transaction,” he said in a note.

The merger would require Newmont to end its takeover of Goldcorp and take a US$650-million break fee, but the fee would be less material thanks to US$250 million in annual corporate synergies, noted RBC Capital Markets analyst Stephen Walker.

He said the deal would create a company with an estimated US$42 billion market capitalization and production of about 10.4 million ounces before divestments, which would put it at about triple the production of the world’s third-placed producer AngloGold Ashanti.