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Barrick CEO: Synergies Would Mean Premium For Newmont Shares

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(Kitco News) - Barrick Gold Corp. (NYSE: GOLD; TSX: ABX) is arguing that its proposal to buy Newmont Mining Corp. (NYSE: NEM) in essence provides Newmont shareholders a premium through an estimated $7 billion in synergies, even though a premium was not built into the share-price offer, Barrick’s chief executive said on Monday.

Mark Bristow, president and CEO of Barrick, made the comments during a conference call with analysts after his company announced a proposal to acquire Newmont, which in turn earlier this year agreed to merge with Goldcorp Inc. (TSX: G, NYSE: GG).

Bristow called Newmont’s plans to acquire Goldcorp “ill conceived” and said Barrick would not want Goldcorp’s assets. Newmont, in turn, issued a statement Monday saying it considers the planned merger with Goldcorp to be the better option for its shareholders.

Under Barrick’s proposal, each Newmont shareholder would receive 2.5694 Barrick shares per Newmont share, representing an at-market transaction based on the volume-weighted average trading prices of the shares of Barrick and Newmont on the New York Stock Exchange over the 20 trading days that ended Wednesday. This was the last trading day before news of the transaction was leaked through the financial press. Barrick shareholders would own 55.9% of the merged company, while Newmont shareholders would own 44.1%.

“With $7 billion of synergies…we are in fact offering Newmont more than $41 a share in value,” Bristow said. “So the synergies clearly are the premium.”

Newmont shares were trading down 42 cents to $36.05 as of 10:48 a.m. EST on Monday. The company’s share price rose to $37.63, the highest level since July, on Friday following a report in The Globe and Mail newspaper saying that Barrick was considering a takeover bid for Newmont.

Bristow said the combined company would have eight tier-one assets and would likely create another one or two. He added that “optimization” of Barrick’s current portfolio is “well advanced,” with the company expecting to generate $1.5 billion in the near term.

Near the start of a question-and-answer session, the premium issue came up again when an analyst asked Bristow why Barrick did not offer a stock-price premium and whether it might still do so in order to sweeten the deal for Newmont shareholders.

“I’ve never seen a premium as high as this…,” Bristow said. “If you take the $7 billion of synergies which we are offering, that’s a premium in itself.”

Bristow said there have been a number of unsuccessful attempts by Barrick and Newmont to merge over the years. “The reason for not doing it escapes me because this opportunity has strategic and financial rationale and is so obvious and compelling,” Bristow said.

At the start of the year, Barrick completed what Bristow called a “widely applauded” no-premium merger with Randgold Resources Ltd. Bristow was the CEO of Randgold before the merger.

“Newmont, in contrast, by all accounts, has rushed into an ill-conceived premium merger with Goldcorp, which is unlikely to deliver significant benefits to their shareholders,” Bristow said.

He said this is why Barrick decided to make what he called “an unsolicited but clearly superior proposal to the Newmont shareholders.” In fact, Bristow said Newmont’s decision to pay a premium for Goldcorp – when Newmont’s chief executive officer planning to retire later this year – “strikes me as both desperate and bizarre.”

The Barrick CEO said his company would not wait until after the Newmont-Goldcorp acquisition to make a merger offer “because we don’t want Goldcorp’s lower-quality assets in our portfolio.”

He listed several reasons why he thinks a Barrick-Newmont merger would be successful, particularly the synergies that can be realized in Nevada, where both companies have a significant presence.

“Barrick has the bulk of the higher-grade reserves, and Newmont owns key processing plants,” Bristow said. Thus, a merger would “reduce operating costs, increase free cash flow and reduce cut-off grades, which would increase reserves and resources, extending not only the lives of the mines but profitability,” he said.

Some of the other benefits would involve transporting ore to the closest processing plant or those that would provide the best recovery for various ore types, Bristow said. The company could consider all of Nevada as “effectively one ore body,” which would result in better mine planning, the Barrick CEO said.

“Incidentally, I have shared all of this with Newmont already, but to no avail,” Bristow said.

Bristow touted the work of Barrick’s management team in the two months since it acquired Randgold, commenting that the company has already integrated management for a savings of some $150 million. Further, he said, Barrick has identified another $200 million in annual savings which it will deliver before the end of next year. Bristow said some $5 billion of shareholder value has been added since the Barrick-Randgold merger was first announced back in September.

“There can be no doubt that we have the people to create that value for both sets of shareholders,” Bristow said.

Assuming that Newmont’s pending transaction with Goldcorp is terminated, Barrick projects that a Newmont-Barrick merger would close in the third quarter, Bristow said.

“We are offering Newmont and Barrick shareholders an exciting opportunity to hold the world’s best and most valued gold company,” Bristow said. “A combined Barrick-Newmont offers shareholders a significant re-rating potential due to its superior asset base, while realizing $7 billion of real synergies. In addition, it will have the highest levels of free cash flow and a management team with a long record of delivering.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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