stock (NEM) is rising on Tuesday, a day after it announced a joint venture with
(GOLD). Newmont CEO Gary Goldberg tells Barron’s that he’s glad to have the partnership in the works and feels optimistic about the coming vote on its
The back story. For gold miners, deal making can be an attractive way to combat persistent problems like commodity price slumps and worries about supply-demand dynamics. Barrick had previously talked with Newmont about combining years ago, but no deal ever blossomed from those discussions.
More recently, Barrick renewed its quest, launching a hostile bid for the company. However, Newmont’s subsequent rally meant that the offer price was below where the stock stood just before the news. Newmont had benefited from upbeat earnings and was already angling for a different deal—a takeover of Goldcorp. It proposed a collaboration with Barrick instead.
What’s new. On Monday, Barrick and Newmont agreed to a joint venture that would consolidate their operations in Nevada. The companies said that they were aiming for half a billion dollars in pretax synergies in the first five years—a solution that Barron’s noted would likely offer shareholders the best of both worlds, as it avoids a protracted takeover process but still allows for cost savings.
Looking ahead. Newmont CEO Goldberg spoke with Barron’s on Tuesday, saying that he believes the joint venture is fairly structured. Barrick will take the lead managing it, with Newmont in a more supportive role, but he expressed full confidence in Barrick’s abilities to deliver on expected efficiencies. (One knock against a full merger was Barrick’s recently completed acquisition of Randgold Resources. Some analysts thought that another deal too soon after would increase execution risks. A joint venture relieves some of that pressure.)
The agreement with Barrick leaves Newmont free to pursue its Goldcorp deal. Indeed, and after the close of trading Monday, Newmont announced a related special shareholder meeting for April 11 (not long after Goldcorp shareholders are slated to vote). Goldberg highlighted the $365 million in synergies he believes will result from eliminating Goldcorp’s Vancouver headquarters and realizing cost savings in the supply chain and portfolio, as well as the application of Newmont’s battle-tested operational strategy. He said that if all goes well, final regulatory approvals could come as soon as the second quarter. (Markets are still feeling upbeat about it, with Goldcorp climbing nearly 3% on Tuesday.)
While the acquisition has its critics, Goldberg said Newmont went into the deal “with eyes wide open after due diligence.… We knew what the issues were and [believe] we can apply the program we’ve successfully applied at Newmont and deliver improved value.”
Goldcorp’s operations before the deal may have raised some question marks, but Newmont’s track record should reassure investors that the company can deliver on the value it’s projected, Goldberg argued. “We’re really looking forward, now that the joint-venture process is under way…[to] turning our focus to Goldcorp,” he said. “We’re well under way with the integration planning, so when the deal closes we’ll be ready to transition effectively and reach our full potential.”
Nor does he think that gold prices, which haven’t made much headway in recent years, should deter investors from the stock. “What is under our control is how we run the business,” he said, adding that Newmont has consistently been one of the industry’s most effective operators in the past five years. “Adding Goldcorp assets puts us in an even stronger position,” and Newmont’s conservative models—it uses a $1,200 reserve price for gold, compared with today’s price of $1,299—means that a drop in gold prices won’t throw the company for a loop, Goldberg said.
Newmont is up 3% to $34.46 in afternoon trading.
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