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Barrick-Newmont Report Seen As Sign Of Continuing Consolidation

Kitco News

(Kitco News) - A news report that Barrick Gold Corp. (NYSE: GOLD; TSX: ABX) is considering a hostile takeover of Newmont Mining Corp. (NEM) is another sign of the potential for continuing consolidation in the gold-mining sector and could help perk up investor interest in mining companies, analysts said.

A Canadian newspaper, The Globe and Mail, reported on a potential takeover attempt involving the two companies, saying that Barrick would keep Newmont’s Nevada and African mines, while Australia’s Newcrest Mining would take over the Australian operations. The report said the deal valued Newmont at around $19 billion.

Newmont’s shares were higher Friday, gaining 5.65% to $37.41 per share as of 11:04 A.M. EST. Meanwhile, Barrick shares were 0.7% lower to $13.25 on the New York Stock Exchange.

Neither company immediately responded to Kitco News’ queries for comment, although Barrick issued a statement saying that it has “reviewed” a potential merger with Newmont but said no decision has been made.

Analysts said the news report would appear to be a sign of the times – mergers are continuing in the mining sector and there could be more, particularly if companies are eying seeing value in other producers as gold shows signs of rising.

Barrick already acquired Randgold Resources Ltd. in a merger that went into effect at the start of the year. Early Friday, Pan American Silver Corp. (Nasdaq, TSX: PAAS) said it had completed the acquisition of Tahoe Resources Inc. to form the world’s largest publicly traded silver-mining company. Meanwhile, Newmont had been in the process of acquiring Goldcorp Inc. (TSX: G, NYSE: GG).

Then came the bombshell news report in The Globe and Mail saying that Barrick was looking at acquiring Newmont, which would mean a combination of the world’s two largest gold-mining companies. Each has projected it will produce more than 5 million ounces of gold in 2019.

“It would seem to me that it’s a continuation of this wave of consolidation that we’ve seen in the gold sector that began with the Barrick-Randgold merger,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “If this is true…it would be a sign that managements are seeing value in the sector and are being opportunistic in trying to scoop up assets.

“Clearly, this will be putting pressure on a number of other companies out there – pretty much everybody – to follow suit. This could accelerate the wave of mergers in the sector. We’ve been expecting to see more mergers in the sector anyway.”

Other producers may want to avoid being “left behind,” waiting until the potential purchase prices of other companies rise further, or prized takeover targets get snapped up, Cieszynski explained.

For one thing, should the reported deal go through, Goldcorp would be left “on the outside looking in” and might feel compelled to undertake some type of action, said Matt Badiali, senior analyst with Banyan Hill Publishing. The Globe and Mail report suggested that if Barrick acquires Newmont, then the Newmont-Goldcorp deal might not happen.

The rising gold price lately could contribute to the trend, Cieszynski explained. This increases companies' revenues, thereby making them more valuable.

“If you want to go shopping, now is the time because if the gold price is going up, then valuations [of mining companies] start going up,” Cieszynski said. He compared the situation to home buyers rushing to purchase a house now if they expected homes will be even more expensive in the future.

Badiali commented that such a merger would probably lead to fewer costs for the companies involved, such as extraneous management, but some impacts on the industry are less certain.

“It leaves us with fewer majors to do deals with juniors,” he said. “It would be interesting to see how the exploration said goes forward from here.”

One plus, Badiali said, is that yet more news about possible mining-sector consolidation may attract investor interest in the sector generally, particularly since gold prices have risen since late summer.

“One of the things that it is doing is bringing attention back to the gold miners,” Badiali said. Otherwise, he explained, interest has been limited after many investors lost money during a bear market.

Credit Suisse analysts pointed out that Bloomberg has reported a slightly different version of the Barrick-Newmont story, saying that Barrick has studied a bid for Newmont but saying it was unclear whether Barrick was currently considering a transaction. Bloomberg reported that Barrick and Newmont considered merging once before but talks broke down on some of the details in 2014.

“From a timing perspective, there is a limited window before Newmont closes the deal with Goldcorp in Q2/19 (as announced) and potentially becomes too big to acquire, but we wonder if Barrick has the appetite to do another major acquisition so soon after Randgold…,” Credit Suisse said.

Analysts said winning approval from Newmont shareholders could be a “challenge” since there reportedly would be no premium involved.

“From a strategic perspective, the deal could make sense for Barrick given the operational synergies in Nevada potentially worth hundreds of millions (some media reports are pegging these synergies at billions), and would make the combined company the go-to name in the gold sector from a size, liquidity, production, and reserve life perspective,” Credit Suisse said.

Cieszynski said he found it interesting that Barrick is supposedly considering yet another merger while still in the process of integrating with Randgold. Typically, he suggested, companies would concentrate on a major task such as this before attempting another major deal.

“If they’re contemplating this, there has got to be some reason why,” Cieszynski said. “It’s almost like a ‘time is of the essence’ thing.”

Meanwhile, analysts at BMO Capital Markets said they “are not in the position to comment on speculation, but the timing is interesting as we head into the 28th BMO Global Metals and Mining Conference next week.”

Bloomberg reported that the chief executive officers of Newmont, Barrick and Newcrest are all expected to be at the conference.

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