Barrick Gold ([stock_market_widget type="inline" template="generic" color="default" assets="ABX.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"]) had shocked the mining industry with its $19 billion hostile bid for Newmont Mining ([stock_market_widget type="inline" template="generic" color="default" assets="NEM" markup="(NEM: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"]) in February this year. The Canadian mining major was aiming to create the world’s biggest gold mining company with this move, believing that the consolidated operations of the two companies would lead to strong synergies.
However, Newmont was quick to reject Barrick’s all-stock nil premium hostile bid, stating that the former’s proposed takeover of Goldcorp will be more accretive to investors. Newmont instead proposed a joint venture in Nevada as a counter offer, suggesting that the interests of the two companies will be better aligned in this area.
Barrick has warmed up to Newmont’s idea, and both companies recently announced that they have formed a JV to carry out their Nevada operations. Let’s take a closer look at what this means for both companies.
Finding Common Ground in Nevada
Barrick has withdrawn its hostile bid for Newmont. The two companies will now combine their Nevada operations in order to achieve annual pre-tax synergies to the tune of $500 million within the first five years of the JV. Barrick CEO Mark Bristow believes that this is the best way forward for shareholders, stating that:
Newmont CEO Gary Goldberg also believes the same. He said that a JV is an “innovative and effective way to generate long-term value from our joint assets in Nevada.”
Newmont Gives Ground to Make Deal
Barrick will be the majority stakeholder in this deal with an interest of 61.5%, with Newmont accounting for the remainder of the stake. Newmont was earlier proposing a 55% interest for Barrick in the Nevada JV. But it looks like the discussions between the two companies have been amicable as one of them has decided to cede some ground to the other.
Once the JV is completed in the coming months post regulatory approvals, the Nevada mining complex will become the world’s single largest producer of gold, according to a press release issued by Barrick. The area produced four million ounces of gold last year with three Tier One mines, holds 48 million ounces of reserves, and is potentially sitting on another Tier One asset.
What’s more, the joint venture is expected to create $5 billion in pre-tax net present value over a 20-year period.
So this looks like a win-win situation for Barrick and Newmont, as both companies have been in negotiations over their Nevada assets for over two decades. More importantly, investors seem to be happy with the arrangement as evident from the positive stock price action post the announcement, which isn’t surprising considering the benefits both parties stand to enjoy in the long run.
