“Capturing the missing billions.”
That’s the title of the presentation that the suddenly-galvanised PR officers of Barrick Gold (NYSE:GOLD)(TSE:ABX) have put together in order to justify the company’s audacious offer for Newmont (NYSE:NEM), announced on 25th February.
The proposition is straightforward enough. Barrick, energised by its freshly installed chief executive Mark Bristow, reckons it can find US$7bn of “real synergies” if the two companies marry up.
Newmont has rejected the offer, with Newmont chief executive Gary Goldberg quoted as saying that Bristow’s experience in the sector is “anemic.”
That will come as some surprise to those familiar with the way Bristow built up Randgold into one of the most reliable gold companies anywhere in the world.
It will be less of a surprise though, that Bristow has his own opinions about Goldberg, telling Reuters that the track record of the Newmont chief in building value shows that he’s a “loser”.
It’s a tussle that’s likely to set the conference hall and surrounding areas buzzing at the ongoing BMO Metals and Mining conference in Hollywood, Florida, which started on 25 February.
Both Newmont and Barrick are due to make presentations, and both will be under considerable pressure to win over audiences.
Barrick itself has been a picture of dynamism since Bristow took over as chief executive last month. There has been a flurry of activity that has included the streamlining of senior management, a restructuring of regional offices, and a significant high-level move to resolve the ongoing disputes around majority-owned Acacia Mining (LON:ACA).
So, Bristow has hit the ground running, and it looks like he’s not planning on stopping any time soon. The US$18bn hostile play for Newmont fits in with a pattern of ongoing consolidation in the gold industry, highlighted most recently by the absorption of Randgold into Barrick, but also on a smaller level by moves being made by the likes of Chaarat Gold Holdings (LON:CGH) to bring major mines in Central Asia together under one roof.
But the pace of Bristow’s attack has been blistering, and looks set to shake up the market good and proper.
After all, it can be no accident that It can be no accident that Bristow chose the week of the BMO conference to make the announcement. The BMO gathering is a high-level affair, not a retail-heavy gathering like so many other conferences around the world. It’s when North America’s biggest names in mining gather to take the pulse of the industry and to do deals.
This week the pulse has quickened quite considerably.
And there’s no doubt that despite Goldberg’s vigorous rebuttal, Newmont has been wrong-footed. It’s currently in the throes of acquiring Goldcorp (TSE:GG), in another sign of the trend to consolidation, but that deal may now fall apart, much to Goldberg’s evident frustration.
Bristow argues that the synergies on offer in the Goldcorp deal pale when compared to those on offer in a Barrick-Newmont combination. In particular he points to the Nevada holdings of both companies as being ripe for consolidation in that Newmont has far greater processing capabilities there, while Barrick’s landholding is of comparable size.
Nevada is one of the world’s great gold mining destinations, in particular the famous Carlin trend, which is where Newmont first started out. Newmont currently operates 19 mines in the state.
Most industry analysts agree with the basic premise that the operations of the two companies could be combined. Indeed it’s been tried before, famously in 2014, when the gold price was just coming down from its multi-year highs, and a full-blown merger was tabled, but which eventually fell apart, partly because of the acrimonious relationship that developed between management teams.
This time round, there’s still consensus that a Nevada combination makes sense, only for Newmont the preferred method would be joint venture rather than a merger.
Swirling around in the background, meanwhile, is Goldcorp, which could come off as a major loser from the Newmont-Barrick tussle. Newmont wants to go ahead with the Goldcorp deal, but with Barrick now on its own share register and tabling amendments to its articles of association, it’s going to be an uphill struggle.
Indeed, in spite of the notional discount on offer from Barrick, now that Newmont shares have moved up in response to the offer, shareholders in Newmont may well gravitate towards Bristow’s offer.
He holds out the prospect of a much improved net asset value for the combined entity, which in turn would underpin the share price. For the time being it’s a rising gold market, so a bullish approach to future valuation makes sense, although what the long-term outlook for gold is remains the perennial question.
The other issue that’s yet to be tested is regulatory. Will there be an anti-trust investigation into such a deal? On some readings that’s unlikely, given that even though a Barrick-Newmont combination would create the world’s largest gold company, it would still account for less than 20% of the market and most of the world’s gold is already in circulation and available for trade.
On the other hand, US anti-trust authorities have waded into gold mining deals for less, and may at the very least request asset disposals.
To some degree that’s already been anticipated by Barrick, which is reportedly looking to spin off some of Newmont’s Australian assets, with local champion Newcrest as the likely buyer.
And it’s that dynamic too which may allow Goldcorp to save some face and some value, if its US$10bn acquisition by Newmont does fall through. An enlarged Barrick-Newmont may spin off other significant assets either for regulatory or efficiency reasons, and some of these may fall Goldcorp’s way.
It’s an interesting dynamic in a sector that’s really coming back to life after several years of quiet perseverance.