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Barrick sees Newmont merger as unprecedented value creator

Barrick president and CEO Dr Mark Bristow

Barrick president and CEO Dr Mark Bristow

25th February 2019

By: Martin Creamer

Creamer Media Editor

     

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JOHANNESBURG (miningweekly.com) – Gold mining company Barrick on Monday announced that it had made a proposal to the Newmont board of directors to merge with Newmont in an all-share transaction, saying a combination of the two companies would form the world’s best gold company with unprecedented potential for value creation.

Barrick president and CEO Dr Mark Bristow said the proposed merger was expected to unlock more than $7-billion net present value before tax of real synergies, a major portion of which would be generated by combining the two companies’ highly complementary assets in Nevada, including Barrick’s significant mineral  endowments and Newmont’s processing plants and infrastructure.

However, Newmont responded on Monday and stated that Barrick’s proposed combination ignored risks and overstated rewards.

In an interview with Mining Weekly Online earlier this month, Bristow, whose Randgold Resources recently merged into Barrick, described Nevada as being "like the Witwatersrand of the 1970s", with its brand new Goldrush-Fourmile discovery already at 12-million ounces at over 10 g/t. “I reckon that’ll go over 20-million ounces and that’s an 8-km-long deposit,” South African-born Bristow told Mining Weekly Online. And then there is Turquoise Ridge, which is the richest gold mine in the world at 15 g/t.

Newmont expressed the belief that it could itself capture Nevada synergies more efficiently through a Nevada joint venture between the companies without exposing Newmont’s shareholders to Barrick’s riskier portfolio, integration risks and transaction costs.

"Newmont has consistently communicated to Barrick its willingness to explore value-generating opportunities for the companies’ Nevada assets," the company added.

But the Barrick release stated that the combination of Barrick and Newmont would clearly create the world’s best gold company, with the largest portfolio of tier-one gold assets and the highest level of free cash flow to drive future growth and support sustainable shareholder returns, run by a management team with an unparalleled record of delivering value.

The Barrick/Newmont transaction, Bristow contended, was a logical and long overdue imperative for shareholders that would be far superior to Newmont’s proposed acquisition of Goldcorp, with expected Barrick/Newmont yearly synergies 7.5 times larger than the quoted annual synergies for the Newmont/Goldcorp transaction.

The Barrick/Newmont merger would, Bristow added, result in an estimated 14 % upliftment in Newmont’s current net asset value (NAV) per share, offering Newmont shareholders an investment in a company of a much higher quality with a better asset base, significant liquidity, a strong balance sheet and a proven management team.

Similarly, the Barrick/Newmont merger was expected to result in a significant uplift in Barrick NAV per share from synergies, plus the opportunity for improvement in Barrick’s trading multiple from compelling financial,strategic, scale and liquidity advances.

Bristow noted that the proposed merger would secure Nevada’s position as the world’s most prospective gold region.

The efficient rationalisation of the two companies’ assets would position the Nevada assets to deliver more than 20 years of profitable production for the benefit of shareholders, employees, local communities and the economy of Nevada.

“Most important, it will enable us to consider our Nevada assets as one complex, which will result in better mine planning and fully realise the state’s enormous geological potential for all stakeholders,” he said.

“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 contended.

“The optimisation of Barrick’s asset portfolio is ongoing. Post-combination with Newmont, our teams would review the combined portfolio applying the same quality and strategic filters currently in place at Barrick with the goal of maintaining the best production, project and exploration assets in the industry,” he added.

Executing on additional rationalisation opportunities is expected to enable further shareholder returns.

The Barrick proposal to Newmont is for a merger in which each Newmont shareholder receives 2.5694 Barrick shares for every Newmont share.

Barrick shareholders would own 55.9% of the merged company and Newmont shareholders would own 44.1%.

The combined company intends to match Newmont’s yearly dividend of $0.56 a share, representing a pro forma yearly dividend of $0.22 a Barrick share.

In light of the “compelling rationale for a Barrick/Newmont combination”, and the importance of allowing the companies’ respective shareholders to capitalise on the benefits of the proposed transaction sooner rather than later, Barrick said it was releasing a letter to Newmont’s board of directors publicly so that the stakeholders of both companies would have the opportunity to evaluate the proposal fully.

In addition, a Barrick subsidiary on Friday submitted a shareholder proposal to be to be voted on at the next Newmont annual meeting of stockholders, to preserve the ability of Newmont’s shareholders to call a special stockholders meeting to ensure that if Newmont shareholders vote down the Goldcorp deal, they are in a position to take action that will allow them to claim their share of the missing billions.

Newmont said it had analysed a potential combination with Barrick, the asset portfolio of which had changed significantly since 2014, including as a result of the merger with Randgold Resources seven weeks ago and its ongoing integration process.

Newmont said it had previously determined that Barrick’s risk and return profile was inferior on many fronts, including factoring in Barrick’s comparatively ineffective operating model, poor track record on delivering shareholder returns and unfavorable jurisdictional risk.

Edited by Creamer Media Reporter

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