Goliath Gold Miner Creation Has Failed

Barrick failed to merge with Newmont, and that could be good news for shareholders.

Apr 30, 2014 at 9:14AM

It's now official: Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM) failed to negotiate a merger. This means that we will not see a creation of a $33 billion gold mining company – at least for now. Both Barrick Gold and Newmont Mining shares finished the day of the announcement on a sour note. However, I don't see that much reason for pessimism regarding the failed merger.

Press release quarrel highlights merger difficulties
The merger talks finished with the issue of belligerent press releases from both companies. In short, both Barrick Gold and Newmont Mining accused each other of the failed negotiations. Barrick stated that Newmont was trying to reverse the previously arranged terms regarding the location of the head office, the assets that would have been included in a spinoff company and the governance arrangements. In its turn, Newmont stated that it strongly disagrees with Barrick's view of the merger process.

This press release quarrel raises the important question of whether Barrick's and Newmont's union would have been organizationally viable. It looks like officials of both companies held different views on important things while negotiating the merger, and those views did not come closer to each other as a result of negotiations.

Not a merger of equal
The merger of Barrick Gold and Newmont Mining would not have been a merger of equal companies. Barrick Gold is bigger and more cost efficient. Newmont's recent first quarter earnings release revealed that the company was successful in pushing its all-in sustaining costs to $1,034 per ounce of gold. However, Barrick showed sub-$1,000 performances on the cost front in each quarter of 2013. Thus, the possible merger would have lifted the cost of mining gold for Barrick's shareholders.

Barrick stated that the proposed merger could have brought positive synergies on the cost front, but never mentioned which synergies it was talking about. The size of such savings was also unclear. At the same time, one could imagine the difficulties of running the joint company with a plethora of stalled projects and a pile of debt.

Spinoff negotiations could have broken the deal
One thing that Barrick Gold mentions in its press release regarding merger discussions with Newmont is the asset composition of a spinoff company. Spinoffs often receive poorly performing assets, lifting the burden from the parent company. At the same time, the spinoff must be viable enough to continue operating on its own.

Importantly, shareholders do receive shares of the spinoff, and are still exposed to the performance of its assets, just like they were exposed to their performance when these assets were a part of a parent company. That's why the mix of assets in the spinoff is important. The fact that Barrick and Newmont were unable to strike a deal on the composition of the spinoff highlights the differences between the two companies.

Bottom line
So far, this is not a good year for deal making for big gold miners. Goldcorp failed to acquire Osisko Mining, and Barrick Gold failed to merge with Newmont Mining. I don't think that Barrick and Newmont shareholders should be disappointed with the outcome. The resulting company would have been huge and difficult to manage, while the obtained synergies might not have translated to real benefits.

OPEC is absolutely terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

 

Vladimir Zernov 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 may not 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers