Possible Barrick-Newmont Merger – What You Need to Know

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With gold reserves depleting around the globe and the rate of new discoveries declining over the past few years, senior gold producers like Barrick Gold (TSX: ) and Newmont Mining (NYSE: ) have been witnessing a drop in their production profiles.

Barrick’s gold production fell to 4.53 million ounces in 2018 from 5.32 million ounces a year ago on account of lower grades and weak recoveries. Similarly, Newmont recently reported that its 2018 gold production was down 3% year over year to 5.1 million ounces. Not surprisingly, both these major gold miners have taken the acquisition route to boost their production going forward.

Falling Gold Production Acts as Catalyst

Looking ahead, experts believe that gold output will drop by 50% over the next eight years and there will be only four mines in operation by 2057.

Barrick recently closed the acquisition of Randgold Resources for $6.5 billion in a bid to create the world’s largest gold producing company. The combined company now owns five of the 10 lowest-cost gold mines across the globe, and not surprisingly, the new Barrick expects its gold production to increase close to 19% this year to a range of 5.1 million to 5.6 million ounces.

Newmont, on the other hand, announced in January this year that it will be buying out Goldcorp (G.TO) in a deal worth $10 billion to boost its own production profile and get a handle on costs. The acquisition is expected to close in the second quarter of 2019, and Newmont believes that the combined company can produce between 6 million ounces and 7 million ounces of gold over the next decade.

Check out our guide to see where Barricks’s gold production costs stack up again competitors.

Now, it isn’t surprising to see why these two gold mining giants have been on the lookout for smaller players. As it turns out, gold miners have spent over $54 billion on exploration over the past 10 years, but that has led to only 41 discoveries and 215.5 million ounces of gold. For comparison, a total of 263 major gold discoveries have been made since 1990, but most of them happened before the turn of the millennium.

Looking ahead, experts believe that gold output will drop by 50% over the next eight years and there will be only four mines in operation by 2057. As such, the only way senior gold producers such as Barrick and Newmont could grow their businesses is by way of industry consolidation that will give rise to a select few mega-producers.

That’s probably why Barrick is reportedly considering its next move after taking over Randgold Resources.

Barrick’s Testing the Merger Waters Again

A press release by Barrick Gold states that the company has “reviewed the opportunity to merge with Newmont Mining Corporation in an all-share nil premium transaction.” However, no decision has been taken at this time, though media speculation suggests that Barrick could go for a hostile bid worth $19 billion.

Rumors suggest that Barrick could bring Australian miner Newcrest Mining into the deal, with the former keeping Newmont’s assets in Nevada and Africa and turning over the Australian assets to the latter. It remains to be seen how such a deal, if it happens, would be structured, but if Barrick indeed makes a play for Newmont, it would be the largest gold mining deal in history.

In fact, the two companies have been close to merging with each other before. Back in 2014, the merger talks between Barrick and Newmont fell apart (paywall) over certain disagreements. As such, it remains to be seen how far the discussions will progress this time, in the case Barrick actually makes an offer for Newmont.

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
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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