Barrick on Newmont merger: “No decision at this time”

Barrick’s Goldstrike at Nevada Gold Mines, the world’s largest gold mining complex. (Image courtesy of Barrick Gold.)

Canada’s Barrick Gold (TSX:ABX)(NYSE:GOLD), the world’s second-largest gold producer, may eclipse its recent and perhaps overly-analyzed merger with Randgold Resources by buying rival gold major Newmont (NYSE:NEM) in a $19 billion all-share deal.

Commenting on media speculation, the Canadian miner confirmed it had reviewed the opportunity to merge with the US miner in an all-share zero premium transaction. “No decision has been taken at this time,” Barrick said.

Both Bloomberg and The Globe and Mail had said Barrick was considering a hostile-bid as Newmont is about to officially become the world’s No. 1 gold producer, once it closes its announced merger with Goldcorp (TSX:G) (NYSE:GG).

A deal could leave Goldcorp stranded — or back in play — amid a wave of consolidation in the gold sector. understands that another option Barrick is considering involves attracting a partner, such as Australia’s Newcrest Mining (ASX:NCM), to jointly attempt a merger with Newmont.

A deal between the two world’s largest bullion miners would create a mega-gold corporation, with assets in almost every continent, including Australia, Africa, the US and Latin America. However, it could leave Goldcorp stranded — or back in play — amid a wave of consolidation in the sector.

If the merger between Newmont and Goldcorp doesn’t go ahead, Barrick would be liable for a $650 million break-fee, The Globe and Mail reported.

This is not the first time rumours of Barrick toying with an offer for Newmont has grabbed headlines. As recently as November last year, the Toronto-based gold giant was said to have resumed talks with Newmont to at least merge their operations in Nevada.

“They have been trying to negotiate for years but Newmont couldn’t agree with Barrick, now that you have a new management team, it’s certain they revived those talks,” anonymous sources said at the time.

Another option Barrick may consider involves attracting a partner, such as Australia’s Newcrest Mining, to jointly attempt a merger with Newmont.

Speaking at the Denver Gold Forum in September, however, Newmont chief Gary Goldberg said the company had examined a deal in the past and had not “seen anything”. He did acknowledge some opportunities highlighted by RBC Capital Markets at the time.

According to the bank’s analysts, the US gold miner could achieve $300 million in operating and cost savings from combining its mines in Nevada with Barrick’s.

Goldberg also said at the time he was interested in buying Barrick’s half shares of their jointly-owned Kalgoorlie mine in Australia.

Newmont and Barrick own Turquoise Ridge, in Nevada, in a 25%-75% partnership. Early last year, the Canadian gold giant said the operation was one of its core ones, due to its exceptional growth potential. Barrick also noted it would invest between $300 and $325 million to build a third shaft there, which combined with additional processing capacity, is expected to enable the mine to roughly double annual production to more than 500,000 ounces per year.

On an interview with Bloomberg on Sunday, however, Goldberg didn’t sound at all positive about the potential takeover attempt by Barrick, as he qualified it as a “desperate” and “bizarre” move aimed at complicating his company’s pending deal to acquire Goldcorp.

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 executive chairman John Thornton since qualified as if not the worst, one of the five worst acquisitions in history.