US gold giant Newmont Mining (NYSE:NEM) took a page out of Barrick’s book by announcing that is buying Canada’s Goldcorp (TSX:G) (NYSE:GG) in a $10 billion-deal that would create the world’s largest producer by output, challenging Barrick’s recently cemented supremacy.
The combined company, which will be called Newmont Goldcorp, will mine in the Americas, Australia and Ghana, producing between 6 and 7 million ounces of gold annually over the next ten years and beyond, the parties said.
As part of the transaction, Newmont has committed to sell between $1 billion to $1.5 billion worth of assets over the next two years. It has also promised initial cost savings of $100 million a year.
The new gold miner will be led by Newmont’s Chief Executive Officer Gary Goldberg, who is retiring by the end of the year. Tom Palmer, the company’s current chief operating officer, will then take over as the CEO.
The stock-for-stock deal comes barely three months after Barrick’s move on Randgold Resources, which created the world’s No. 1 gold company and prompted speculation that rivals would need to respond.
Newmont’s move proves Barrick Gold Corp.’s new chief executive officer words prophetical. Mark Bristow said earlier this year the gold industry was heading for irrelevance unless major changes took place and added the arrival of new Barrick was just the start of a big shake-up.
The two massive gold transactions have the potential to boost investor interest in an industry that has fallen out of favour after years of weak metal prices, dubious investments and failed deals.
Canada’s Goldcorp, the world’s third largest bullion producer by market value, has underperformed its peers in recent years. In late October, The Vancouver-based miner lost close to a fifth of its market value in a single day after reporting weak production, climbing costs and a decline in reserves.
The company’s shares have been in a long-term tailspin, trading at $12.86 Friday on the Toronto Stock Exchange, down from more than $54 in 2011.
The merger is scheduled to close in the second quarter.
Newmont shares were down almost 6% in New York, trading at $32.85 by 9:32 a.m. local time.