It’s happening — Barrick makes hostile $17.8 billion bid for Newmont

Canada’s Barrick Gold (TSX:ABX)(NYSE:GOLD), the world’s second-largest bullion producer, is going hostile in its bid to acquire U.S. rival Newmont Mining (NYSE:NEM) and create a mega-gold corporation with a $17.8 billion all-share offer.

The move, announced before markets opened on Monday, increases the potential for a three-way fight among some of the world’s largest gold miners, and comes after Newmont’s chief executive, Gary Goldberg, qualified the approach as a "desperate" and "bizarre" move by Barrick.

If successful, the bid will create the world’s largest gold company with a value of around $42 billion at current market prices. That gold mammoth would hold assets in almost every continent, including Australia, Africa, the U.S. and Latin America.

The move increases the potential for a three-way fight among Barrick, Newmont and Goldcorp, some of the world’s largest gold miners.

The Toronto-based miner is offering 2.5694 shares for each Newmont share, giving investors of the U.S. company a 44.1% of the combined entity. The deal, Barrick said, it's “far superior” to Newmont’s $10-billion offer to buy Goldcorp (TSX:G) (NYSE:GG), unveiled in January and still on the works.

In a letter to shareholders, chief executive Mark Bristow said acquiring Newmont would create up to $7 billion in synergies, mainly through cost savings due to the overlap in operations in Nevada, where both companies have massive mines and exploration projects.

“Considered globally, the merger represents a radical and long-overdue restructuring of the gold industry, and a transformative shift from short-term survival tactics to the long-term creation of sustainable value,” Bristow said.

Newmont, however, said Monday that Barrick’s proposed combination ignored risks and overstated rewards.

The companies already own in Nevada — the largest U.S. gold- and silver-producing state —  Turquoise Ridge mine, in a 75%-25% partnership. And Newmont alone has 19 mines adjacent to Barrick's own operations.

"There is no other transaction in our industry that can create better value for shareholders and other stakeholders than a business combination between Newmont and Barrick," John Thornton, Barrick’s executive chairman, wrote to Newmont’s board. "The market reaction to date to your Goldcorp transaction suggests that investors do not endorse your rationale."

It’s happening — Barrick makes hostile $17.8 billion bid for Newmont

Newmont replied by saying that any Nevada synergy could be more efficiently realized through a joint venture between the companies "without exposing Newmont’s shareholders to Barrick’s riskier portfolio, integration risks and transaction costs."

It noted the company has consistently communicated to Barrick its willingness to explore value-generating opportunities for their Nevada assets.

A deal between the two world's largest bullion miners would likely thwart Newmont’s intended acquisition of Goldcorp, leaving the Vancouver-based company stranded — or back in play — amid a wave of consolidation in the gold sector.

The potential mega-merger of the two world's largest bullion miners would likely thwart Newmont’s intended acquisition of Goldcorp.

It would also bring into question Barrick's ability to integrate another miner, as the company has just completed the acquisition of Randgold.

The potential mega-fusion would follow years of relatively sluggish gold prices, with futures stuck in a range between $1,000 and $1,400 per ounce since 2013. But the precious metal seems to be on the way up, with prices increasing about 11% since October.

Barrick and Newmont have held merger talks every decade or so for almost thirty years, with the last one blowing at the 11th hour in 2014.

The news comes as the mining industry is still recovering investors’ trust following a stretch of ill-timed and badly-chosen expansions and acquisitions that sent billions of dollars down the drain.

Barrick itself was responsible for one of those —  the acquisition of Equinox Minerals in 2011, which Thornton since qualified as if not the worst, one of the five worst acquisitions in history.

Shares in both Newmont and Barrick were largely unchanged in early trade.