Is Barrick-Newmont’s Nevada JV under Threat?

Barrick Gold [stock_market_widget type="inline" template="generic" color="default" assets="ABX.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] and Newmont Mining [stock_market_widget type="inline" template="generic" color="default" assets="NEM" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] brought an end to their hostile takeover saga by announcing that both companies will be operating their Nevada assets through a joint venture. However, a Bloomberg report indicates that such a deal might be under threat because of a potential bondholder revolt.

What’s the Problem?

According to Bloomberg, Barrick Gold might be held liable to some extent for $600 million worth of additional debt. That’s because certain Newmont creditors are looking to block an amendment that aims to protect Barrick from any liability. Newmont has clarified that its joint venture with Barrick is not dependent on the bondholders’ agreement to the proposed change.

However, if the bondholders succeed in their quest of holding the joint venture liable to their $600 million worth of bonds that are due in 2035, Barrick will have to take on some of that liability. The bonds are currently guaranteed by three gold mines in Nevada that will become a part of the Barrick joint venture.

As a result, Barrick could be held liable for those bonds, and this is where the potential partnership might hit a roadblock. A spokeswoman for Barrick Gold told Bloomberg:

Barrick expects that Newmont will address any joint venture related issues that it may have with its creditors in a manner that would accommodate the completion of the joint venture arrangements within the time frame contemplated by the parties.

Bloomberg also reports that Newmont is “required to bring its assets into the joint venture free and clear of any third party debt, and Barrick is not planning to guarantee any Newmont obligations.” As such, the Newmont-Barrick joint venture could face yet another resistance.

If that happens, it could result in a big loss for both companies given the synergies they are expecting out of this deal. The combined Nevada operation of both companies is expected to result in $500 million of annual pre-tax synergies within the first five years of operation. Also, Barrick and Newmont expect that the joint venture could mean $5 billion of pre-tax net present value over the next two decades.

Another Challenge for Newmont

Newmont has already taken steps to ensure that its deal with Barrick goes through. The company was earlier in hot water over the money it was paying to acquire Goldcorp, so it had to pacify investors with a special dividend. Newmont investors were worried that Goldcorp shareholders might get undue benefits from the Nevada JV. Now it has a different set of stakeholders to satisfy so that its JV with Barrick can go through.

As reported by Bloomberg:

Newmont has offered holders $1 per every $1,000 to accept the changes, and consents are due by 5 p.m. New York time Thursday. The company had informed holders of the offer through a statement issued on April 4 at 4:05 p.m., giving them less than a week to respond, but on Wednesday afternoon Newmont extended the deadline by just less than 24 hours.

So it remains to be seen if Newmont can hammer out a deal with its bondholders in time to ensure that its JV gets off the ground.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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