Fool's Gold Report: Metals Tread Water As Barrick Gold, Newmont Mining Still Draw Attention

Without any major moves in the gold market, investors are focused on Barrick and Newmont and a possible merger.

Apr 23, 2014 at 6:24PM
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The precious-metals markets have been relatively calm lately, and today's lackluster day in the stock market wasn't enough to drive big gains in gold and other precious metals. News that new-home sales plunged 14.5% in the U.S. might ordinarily have had a positive impact on gold, but most investors were willing to discount that news as a weather-related oddity rather than a sign of true economic weakness. As a result of the quiet trading in bullion, investors mostly looked further at the potential tie-up between Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM) and whether it's likely to come to pass.

Deal or no deal?
With the fact that talks between Barrick Gold and Newmont Mining had already taken place now public, we've now started to hear from some of the players involved in the possible deal, who've shared some of their views on the dynamics of negotiating a successful combination of the two companies. Barrick Gold founder and chairman Peter Munk told Financial Times yesterday that he saw obvious synergies between the company and Newmont Mining, pointing to cases in which the two miners have adjoining properties in areas like Nevada. Munk also noted that with so much political risk around the world, the opportunity to concentrate attention on politically safe areas like the U.S. and Canada is highly attractive. Newmont Mining shareholders can certainly understand that dynamic, as the company struggles with the Indonesian government over obstacles to exporting output from its huge copper mines there.

Gold And Silver

Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.

At the same time, the combined Barrick-Newmont would pose a competitive threat to other major players in key areas of the world. In Australia, for instance, a possible spinoff of Asia-Pacific assets could create a new entity that would compete against Newcrest Mining, which is currently the island-continent's largest gold producer. One of the major stumbling blocks to the merger is where these key Asia-Pacific mines would end up -- either within the combined entity or spun off into a separate venture -- and so far, it's unclear which scenario would be more favorable to investors in either Barrick or Newmont. Munk confirmed with Bloomberg that although Barrick Gold and Newmont Mining had discussed mergers before, they hadn't explored spinoffs as a creative way to get a deal done.

Given the $1 billion or more in potential cost savings, you can expect Newmont Mining and Barrick Gold to keep exploring a possible merger for a while. The more interesting question lies further in the future, when third parties might step in and try to disrupt the negotiations with offers of their own.

How metals moved today
June gold futures rose $3.50 per ounce Wednesday, settling at $1,284.60. May silver futures gained $0.08 per ounce to $19.44, while platinum and palladium inched higher as well.

Metal

Today's Spot Price and Change From Previous Day

Gold

$1,284, unchanged

Silver

$19.45, up $0.06

Platinum

$1,400, up $2

Palladium

$783, up $1

Source: Kitco. As of market close.

Again, though, without any truly earth-shattering news, gold and other precious metals appear to be stuck in a rut. With Newmont reporting earnings later this week and other miners following suit over the next couple of weeks, we'll soon get a better sense of how mining companies are dealing with the tough pricing environment, and that could make bigger waves in the gold market.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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